Although 87% of employers believe that staff are not saving enough for retirement, a huge 94% plan to reduce or axe their final salary pension schemes because they can no longer afford them.
According to a survey of 179 large companies, which include 38 FTSE 100 players, by consultancy PricewaterhouseCoopers, the number of organisations that have closed defined benefit schemes for all staff who will see no more benefits accruing, has more than doubled to 32% this year from 14% last year.
A further 30% said that they planned to follow the trend in the future and a mere 6% said they would retain plans in their current form.
Marc Hommel, PwC’s pensions partner, said: “Employers are sounding a repetitive death knell for defined benefit pensions. Numerous factors, including the size and volatility of funding costs, and also concerns about the inequality of pensions provision within an employer’s workforce, are accelerating their demise.”
Although companies recognised the value to their businesses and staff of providing workplace pensions, they were not prepared to do so “at the risk of jeopardising the business as a whole”, he added.
As a result, there was growing evidence to suggest that, after limiting the value of pension promises being made to staff going forward, some employers were also revisiting past benefits.
Although only 8% have already offered former staff enhanced deals if they agreed to transfer their pension entitlements elsewhere, a further 53% were considering whether to follow suit. A third of respondents were even evaluating whether to offer pensioners a deal to encourage them to give up rights to future pension increases.
But PwC also warned that employers needed to start addressing the challenge of auto-enrolment, which will require them to sign personnel up to an occupational pension scheme by 2012 unless they specifically opt out.
Some 69% of those questioned still did not fully understand the cost and implications of the change to their business, the study found, with the retail, leisure and construction sectors being potentially the worst hit. While auto-enrolment could cost employers up to £1,000 per affected employee per year, up to 90% of staff in such sectors currently have no pension provision in place at all.
“Some UK employers face millions of pounds in additional costs from 2012, when they will have to automatically enrol employees into a pension scheme and ensure minimum contributions are paid,” Hommel said. “This is a pressing issue for those employers that need to plan for this financial outlay and who risk financial penalties and reputational risk for failure to comply.”