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22 Jun 2016

Companies spending more on pensions for older workers than younger staff

A major analysis of UK businesses has revealed that there is a clear pension divide between generations of workers, with British companies spending 20 times more on pension contributions for older staff than their younger counterparts, the Telegraph reports.

The Inter-generational Foundation confirmed the scale of the private pension divide with it recent study, which found that £42 billion is spent each year on guaranteed final salary schemes for older members of the workforce.

In contrast, employers are spending just £1.8 billion per year on decidedly less generous defined contribution arrangements for younger workers. According to the think tank, this effectively means that older workers are receiving pension contributions to the value of £23,600 per year, compared to just £1,600 for younger staff.

In order to address this problem, the Foundation is calling on the Government to amend the legislation that´s currently preventing organisations from reducing the pension promises that were made to older employees decades in the past.

If this relaxation of the rules were to take place, around £12,000 per employee without a final salary pension would be freed up - which could provide a much-needed boost to the retirement finds of younger workers.

Frank Field MP, chairman of the Work and Pensions Committee, told the Telegraph of his plans to begin a new inquiry that would “breathe new life into occupational schemes without selling their future.”

However, pensions minister Ros Altmann expressed her concern that a decision like this would be “really dangerous,” allowing benefits for older people to be cut without being certain that the resources would be re-targeted toward younger employees.

Co-founder of the Inter-generational Foundation, Angus Hanton, advised that the “burden of having to divert huge sums of money to fund final salary pension promises is effectively acting as a drag on investing for younger workers.”

“Companies need to accept that current final salary pension payments should be reformed and linked to greater investment in the future sustainability and profitability of businesses,” he added.

Copyright M2 Bespoke 2016

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