Rising pensions costs reduce other benefits

Rising pensions costs reduce other benefits

According to new research by Aon Consulting (NYSE: AOC), an actuarial firm, 49 percent of UK firms have either raised the amount of money employees must contribute to their pensions schemes or cut other benefits in order to maintain current levels of employee contributions to their pensions. This is due to a significant increase in how much the pensions schemes cost employers, who are now responsible for making up for any deficits suffered by the schemes.

Costs for pensions are going up for several reasons. People are living longer, for example, so that pensions have to be paid out for a longer period of time. In addition, returns from investments made by the pensions schemes have declined so that “contribution holidays”, in which employers and employees did not have to contribute to their schemes because of high returns on investments, are no longer possible.

Now, new rules put in place by the Pensions Regulator stipulate that employers must make up any shortfalls in pensions schemes, which means in some cases that they have to put millions of pounds into the schemes. This has happened recently to British Airways (LSE: BAY; NYSE: BAB), and BAE Systems (LSE: BA; OTCBB: BASEY), and BT (LSE: BT.A; NYSE: BT), among others. Some others, such as Marks & Spencer (LSE: MKS), have taken another tack, informing employees that they much either contribute to their pensions scheme for the first time or see their pensions accrue at a slower rate in order to erase their pensions deficit. Still others, among them Royal Mail, are thinking of closing their pensions schemes to new employees. This has already happened to 58 percent of final salary schemes, according to the Aon report.

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