Pension reform "threatens savings of thousands"

By Jennifer Hill

LONDON (Reuters) - Government reform of the private pension system will sound the death knell for existing employee pension schemes with a total of 300,000 members, according to research.

The introduction of "personal accounts" in 2012 will see at least that number of workers lose their existing schemes, according to Fidelity International.

The government has long touted the new accounts as the solution to avoid a looming pensions crisis.

But many advisers and providers fear they could threaten existing pension schemes -- with employers "levelling down" to new lower contribution levels -- and force millions of lower wage-earners to save, thereby losing out on means-tested benefits.

Individuals will be automatically enrolled into the scheme, unless they opt out. They will contribute 4 percent of their pay to the new accounts, with companies paying in 3 percent and the government contributing 1 percent in the form of tax relief.

But around 7 percent of 100 finance directors from some of Britain's largest companies said they would close existing schemes and replace them with personal accounts, according to a poll for Fidelity.

With 4.4 million people paying into private sector pension schemes, this means 300,000 people could lose their current company pension.

An additional 11 percent of employers say that, although they will keep all existing employees in current company schemes, new joiners will only be offered personal accounts -- with considerably lower contribution rates.