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Plc saving up to £4.53bn a year thanks to closure of final salary
By Ellie Bennett |
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Employers in the UK are saving up to £4.53bn a year due to the continuing demise of final salary pension schemes, , according to MGM Advantage. The retirement income specialist has published new research revealing that UK plc is saving significantly in terms of pension contributions now that there are some two million fewer people in defined benefit (DB) pension schemes than there were in 1995. MGM Advantage has estimated that if these people had remained in their existing pension plans, their sponsoring employers would have paid some £7.77bn into their pensions per annum. Many of these people moved into defined contribution (DC) arrangements and, as a result, their employers only had to pay an estimated £3.24bn a year in pension contributions. MGM Advantage has estimated that the average contribution from an employer to a DB pension is around 15.6 per cent of a person’s salary, compared to 6.5 per cent to a DC pension. According to Aston Goodey, sales and marketing director at MGM Advantage, the shift from final salary to DC pension arrangements in the UK, means that people will have smaller pensions come retirement. Therefore, they need to be more focused on their financial planning and seek professional advice when purchasing an annuity. Goodey explained: “For someone buying an annuity with a pension pot of around £50,000, choosing an enhanced annuity over a typical product could mean an extra £681 a year for women during a standard retirement and around an extra £715 for men.” However, Goodey
told Pensions Age that it is “shocking” how
poor consumer awareness of the open market option is, and that “massive
amounts of work” needs to be done in this area, not just with
consumers, but also with IFAs.
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