Mellon Financial Corporation has just released the results of its survey into the world of pensions and how employees feel about them.
According to the company, 73% of employees questioned 'were likely' to pay more for a pension that gave them a known benefit at retirement. These types of pensions are known as Final Salary or Defined Benefit Pensions and do not rely on the ups and downs of stock markets. With the exception of any contributions the employee makes, the employer takes on the rest of the burden to ensure there is enough money in the pot for the employees pension at retirement.
Mellon's research indicated that employers who have already closed their Final Salary schemes were short sighted.
Our View
We don't believe that employers closing final salary pension schemes has anything to do with being short sighted. More to do with money and the ongoing viability of their companies!
It is all well and good for employees to say they would pay more in to get a guaranteed pension but, would it really happen in practice?
If an employee was asked to take a pay cut in order to get a guaranteed pension, would they? Probably not! The average pension contribution from employees is 5.5% apparently. However, the maximum allowable is 15%. Would employees with little or no knowledge of pensions be prepared to pay in 15% of their salary?
With human nature being as it is, employees are generally short-sighted themselves, although this is not always a bad thing. There is also the fact that many employees do not stay with the same employer for any length of time. If this is the case they will not see the benefit of only a few years service and a tiny guaranteed pension in retirement.