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.
Simon Fraser, president of the investment solutions group at Fidelity International, said: “The government’s original intention for personal accounts was to ‘complement rather than compete’ with existing provision, but our findings reveal that this will not be the case.
“We recognise that everyone is striving for the same goal but action needs to be taken now to mitigate the risk of the pension crisis deepening.”
However, pensions minister Mike O’Brien said the reforms had widespread support from industry bodies, pension providers and pensioners’ groups.
“Today, employers are not obliged to contribute a penny to staff pension schemes. And many don’t contribute. We will change that,” he said in a statement.
“Workplace pensions are an important recruitment and retention tool and we believe benefits offered by employers will continue to reflect this.
“But we are not complacent and will continue to work with employers and the pensions industry to guard against levelling down.”