UK Pension Body Says Employers Should be Able to Cut Benefits

June 12, 2006 ( - The UK's National Association of Pension Funds said Friday that the government should permit employers to shrink worker benefits, or else be crippled by rising pension costs.

NAPF Chief Executive Christine Farnish said at an industry conference that for many companies “funding pension schemes now accounts for over 30% of payroll costs,” according to Reuters. She also urged the government to revisit the regulatory framework for pension schemes and make them more flexible, so that “voluntary pension schemes set up by employers can adapt to changing economic and demographic conditions over time.”

The costs of final salary plans have become as high as 70% more expensive to fund than when there were set up, Reuters reports. The climbing costs have prompted many companies to shift to money purchase pension plans in which the employees bear the investment risks (See UK Pensions Follow US Trend ).

In May the British government issued a formal proposal for its most sweeping pension reform, which included increasing the retirement age to 68 and creating a new national savings plan that will automatically enroll employees (See UK Issues Formal Pension Reform Proposal ).

Pensions Secretary John Hutton told the NAPF conference on Thursday that the government would cut regulation to help reduce costs and help reduce deterioration of existing plans, according to the news report.

Some pension experts fear that the 3% employer contribution required by the new national pension scheme could tempt more generous companies to bring down contributions to their plans.