Employers getting a poor return on pension provision – PwC

EMPLOYERS in the West Midlands are getting a poor return for the amount they spend providing pensions for their employees, a new survey has suggested.

PwC said fresh thinking was needed to improve value for both employers and their workers in the region.

The firm said it estimated UK employers spend £30bn each year on workplace retirement savings (excluding amounts being spent to address pension deficits).  

Despite this considerable expenditure, the PwC survey of 300 employees across the West Midlands workforce concludes:

•    84 % of employees either have “no idea” or dramatically under-estimate how much it costs to save for a pension

•    Only 10% of employees take the level of employer pension savings into account in deciding whether to accept a job offer

•    80% say it would have no impact on their decision to stay with their employer if their employer-provided pension scheme was reduced or closed

•    41% say they don’t understand their employer’s pension scheme and how it will benefit them

•    22% of employees expect never to be able to retire and a further 28% expect not be able to retire until well past age 65

Jeremy May, pensions expert at PwC in the Midlands, commented: “Midlands employers need to ask themselves what dividend their organisation is getting in exchange for the considerable sums they are spending on retirement provision.  

“Given that all UK employers currently need to address their employment policies around the impact of April 2011 pension tax changes and October 2012 requirements for pensions auto-enrolment, now is an ideal time to assess whether a shake-up in the way retirement savings are provided can improve value for the employer and its employees.”

He said the reality of inadequate retirement savings would hit home over the next few years.  
“A dramatically increasing proportion of people wishing to retire are members of defined contribution arrangements who will need to convert in many cases insufficient retirement savings to monthly pension income at historically expensive annuity rates.  

“This will be compounded by these same people facing decimated savings and property values, relative to those people who have retired recently from defined benefit pension schemes.  Significant numbers of workers are now expecting never to be able to retire or to have to work well beyond the ages they originally anticipated,” added Mr May.  

According to PwC’s research, in lieu of an equivalent wage rise, 21% of workers would prefer their employer to make contributions to a flexible savings scheme on their behalf that allows them to access funds around lifetime events (such as a birth or marriage).   

A further 31% of workers would prefer employers to offer financial and other assistance with financing property and paying off personal debts.