Companies schemes to come under extra pressure

24 Oct

Auto enrolment will give companies “an excuse” to close their more generous final salary schemes and reduce their pension obligations to the minimum I believe.

There is a backdrop of a tough economic environment, tax and legislative changes, and the fact that people are living longer, final salary schemes have become less and less financially viable for many employers.  


As a result, many have wanted to abandon them for a while, and auto enrolment provides them with an ideal excuse to consider closing future accruals in such schemes as part of a final exit strategy.

There are also real concerns that auto enrolment will result in firms ‘levelling down’ their pensions arrangements to the minimum requirements.

With major organisations, including O2 and London’s Royal Opera House already confirming that they are in a “consultation process” on closing their final salary schemes, the trend is likely to ‘snowball’.

As auto enrolment gathers momentum, and as the business ‘herd mentality’ comes into play, we expect to see more and more companies closing such pension schemes.

In addition, as a growing number of firms stop paying in, pressure will mount on the existing schemes which could lead to their failure.

The reality is the people need to understand the amount needed to support themselves in retirement then receive good financial advice to help them achieve their goals.


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