Britons face huge pensions' gap |
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Published
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Thu, 11 May 2006 14:40
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LONDON - A survey released today by fund manager Fidelity International says that Britons who have saved for their pensions in a "defined" contribution scheme are likely to end up with a 60 percent cut in their income. Fidelity has based its calculations on the current contributions and says that members who contribute to a defined scheme are likely to get 38 percent of what they earned prior to retirement.
As opposed to this, members of a final salary scheme will earn as much as 81 percent of their pre-retirement income as pensions. "The gulf between the retirement expectations of defined benefit and defined contribution pension scheme is astonishing," said Simon Fraser, president of institutional business at Fidelity.
"We don't believe this is because defined contribution pension plans are inherently flawed. The fault lies with the way those arrangements have been implemented." He added that Britain faced the prospect of ending up as a "two-tier pension nation" if employers and defined scheme did not take steps to rectify this gap.
Fidelity said that workers who did not get employer contributions ended up with just 35 percent of their final salary, while employer contributed to the pensions received 51 percent of their final salary. "Unless defined contribution plans are brought up to the same quality level of defined benefit schemes, then we will condemn generations of workers to a retirement close to the poverty line," Fraser said. "There will be huge implications for state funding, and possibly for the economy as consumption of goods and services declines."
Fidelity said that workers under the final salary scheme can expect to earn £30,500 before tax annually, while those on a defined contribution scheme would earn only £13,200 every year.
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