Ninety-four per cent of employers plan to reduce or scrap their current defined benefit (DB) plan offerings, finds PricewaterhouseCoopers (PwC).

Research by the group shows that closures of DB schemes are set to surge, with 30 per cent intending to close to future accrual for existing employees. As it stands, 32 per cent of companies have already closed, an increase of 14 per cent on last year’s figures.

The survey, of 179 major employers, showed that only six per cent of companies expect to keep their DB schemes in their current form.

“Employers are sounding a repetitive death knell for defined benefit pensions,” said Marc Hommel, pensions partner at PwC LLP. “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. Companies recognise the value to their businesses and people of providing workplace pensions but not at the risk of jeopardising the business as a whole.

However, paradoxically 87 per cent of employers believe that employees are not saving enough for retirement, and 60 per cent think their employees will not be able to retire when they wish to, due to insufficient savings. More flexibility in retirement practices is necessary, says the majority of companies surveyed.

“While employers cannot shoulder all the burden of responsibility for an ageing population with insufficient retirement savings, they will undoubtedly be impacted by these forthcoming socio-economic problems. Those employers that can facilitate retirement saving in an easy, understandable and flexible way will be best placed to ride these longer-term challenges.”

PwC said that, worryingly, 69 per cent of employers do not yet fully understand the cost and other implications for their businesses of auto-enrolment. Hommel said that some UK employers face additional costs from 2012, when the auto-enrolment requirements come into play. “The cost to employers could eventually be up to £1,000 a year per affected individual. This is a pressing issue for those employers who need to plan for this financial outlay, and who risk financial penalties and reputational risk for failure to comply.”

Fifty-three per cent of companies intend to offer Enhanced Transfer Values (ETVs) in the future, and some companies are also offering current pensioners an immediate boost to their pension pot in exchange for forsaking future pension increases. Thirty-one per cent now intend to offer this in the future, compared with just 13 per cent last year.

“Many employers have been reluctant to undertake pension liability reduction exercises for former employees because of concerns about reputation. However, impetus for action comes from increased company concerns about the risks their businesses face from these enormous legacy pension liabilities, together with the support of sound regulatory guidance and greater industry experience in successful execution of such programmes.”

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