Defined contribution (DC) pension plans are the predominant form of pension scheme among FTSE100 employers.
According to the Towers Watson FTSE 100 Defined Contribution Pension Scheme Survey, a quarter (25%) noly offer DC schemes to all employees, an increase from 15% last year.
Around 90% of these employers offer a DC scheme to new members, with the remainder offering different forms of defined benefit (DB) schemes: 6% offer a career average scheme, 2% cash balance, 2% hybrid and only 1% final salary.
Paul Macro, senior DC consultant at Towers Watson, said: “With a two-third increase in the number of FTSE 100 companies offering only DC to their employees, DC pensions continue to dominate the retirement savings landscape. This is a trend we expect to see continue in the next couple of years as more firms close DB schemes to future accrual and frequently replace DB with DC.
“This contrasts strongly with recent proposals by Lord Hutton to move public sector pensions away from final salary to career average and not defined contribution which, if implemented, will mean the gap between private and public sector pension provision will continue to widen.”
The survey also found the rate of increase in overall maximum employee and employer contributions slowed down during 2010.
During the same period, the provision of employer contributions that are based on the level of employee contributions remains the most common approach.
This year’s survey shows only a small increase in the maximum combined employer and employee contributions during 2010 to 16.7% of salaries, compared to 13.7% of salaries during 2005 to 16.5% of salaries during 2009.
The survey also found that the levels of overall contributions available varies between different sectors represented in the FTSE 100.
Overall maximum contributions available to workers in the chemical, pharmaceuticals, energy and financial services industries are all much greater than the overall average at over 18.5% of salaries, whereas workers in retail, travel, media and technology fair worse than average with overall rates available of less than 15% of salaries.
Macro added: “Previous years have seen strong growth in contribution levels as companies conducting DC plan designs and reviews have recognised the real need to offer access to higher levels of contributions in order to provide members with a decent level of retirement income.
“However, this growth now seems to have stopped, but at a level which is clearly much better for members than we saw just a few years ago, and still well short of the cost, for companies, of providing the vast majority of defined benefit plans.”
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