FINANCE NEWS: Employers to face pressure to hike pensions under new rules

Mathew Little

Charities could come under heavy pressure to raise pension contributions because of new regulations which came into force last week.

Under the rules from the Department for Work and Pensions, all employers that run money purchase or stakeholder pension schemes must provide annual illustrations to members of the future spending power of their pension when they retire.

Up to now, employers have merely informed staff of how much money they have accrued in their pension account.

"Anyone paying into a pension scheme should have a reasonable idea of the level of pension they might receive when they retire," said Ian McCartney, who was Pensions Minister until appointed as Labour Chairman on Friday.

"Because the illustration is shown in today's figures, people will able to see what the real spending power of their pension might be. Today's prices discount the effect of future inflation."

But Ian Bird, an independent financial adviser at Millfield Partnership, which runs chief executives' body ACEVO's finance advice service, warns that voluntary sector workers could be in for a shock.

"People will be horrified by what the projections will reveal. Charities on average pay between 5 and 6 per cent of salary into money purchase schemes and that will yield retirement income a fraction of salary," he said.

"Charities will come under a lot of pressure to raise contributions. The effect will be that charities will have to dig deep into their pockets to support pension schemes."

Bird added that a contribution level of 10 per cent from charity employers and 5-10 per cent from employees might be necessary to fund pensions at decent levels.

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