Defined benefit (DB) pension plans face a bleak future in the U.K., as nearly every DB plan sponsor expects to make cuts to its plan in the future, a recent survey reveals.

PricewaterhouseCoopers’ (PwC) survey of 179 major employers finds that only 6% of companies expect to retain their DB plans in their current form, while the number of companies that have shut DB plans to existing employees has more than doubled since last year’s survey, from 14% to 32%. A further 30% intend to close DB plans to existing staff, up from 17% last year.

Meanwhile, 87% of employers admit their employees will not have saved enough for retirement.

“Employers are sounding a repetitive death knell for DB pensions,” says PwC pensions partner Marc Hommell. “Numerous factors—including the size and volatility of funding costs, and also concerns about the inequality of pension provision within an employer’s workforce—are accelerating their demise. Companies recognize the value to their businesses and people of providing workplace pensions—but not at the risk of jeopardizing the business as a whole.”

He adds that while employers are unable to assume complete responsibility for an aging population with insufficient retirement savings, they will nonetheless feel the effects of the resulting socio-economic problems. Employers that find a way to facilitate retirement savings in an easy and flexible way will be best placed to ride the longer-term challenges.

The survey also found that employers are raising the alarm about government measures to restrict tax relief on pension contributions for higher earners, as it will lead to a mass leveling down of overall provision. A large majority of respondents (70%) believe cutting tax relief for savers at the top end would result in lower pension provision for all employees.

“Employers are telling us that the higher earners pensions tax, to become effective from April 2011, has destroyed their trust in the durability of the pensions tax framework governing all pensions,” says Hommell. “They are also deeply concerned about the compliance and administrative burdens. We await the June 22 budget to see if the new coalition government intends to repeal or simplify this in any way.”

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