Survey: UK Firms Say DB Contributions Shaving Profits

July 17, 2006 ( - UK companies funnel an average of 19.6% of their employees' salaries into defined benefit pension plans, and 17% of firms say the payments are hurting profit gains, according to a survey released Monday.

Reuters reported that the survey of 355 UK firms by Mercer Human Resource Consulting and the Confederation of Business Industry, a business lobbying group, found that almost three-quarters (74%) of firms with DB plans reported a sharp dip in profits because of increased pension payouts, compared to half of firms that took the same stance two years ago.

Even if the average payment to DB plans stands at 19.6%, one-quarter of firms say they pay as much as 25% of salaries.

An Aon survey reported i n early June that one reason for decreasing UK pension deficits, which were down 35 billion pounds from the month before, was that employers were increasing their contributions (See UK Pension Deficits Drop 30% in June).

“The rising cost of pensions has had a serious impact on corporate cashflow, profitability, investment and the ability to pay dividends. And this survey shows that government actions have not alleviated the pressure,” Richard Lambert, CBI director-general, said in the report.

According to Reuters, the survey also found that 7% of respondents think they should offer DB pensions and that c ontributions to DB pensions are more than double those paid to retirement pots linked to investment returns. Companies contributed an average of 14.2% of pay to a defined benefit pension, while contributions to DC plans stood at 6.6%.

The survey also looked at employers’ attitudes toward encouraging employees to save for retirement and found that 81% of respondents said employers should play a role in retirement saving, the wire service reported.