Personal accounts will cancel existing pensions - Fidelity

The introduction of personal accounts in 2012 will see at least 300,000 UK employees deprived of their existing pension scheme benefits, Fidelity International has warned.

In its white paper, Corporate Commitment to Pension Provision, which was conducted among 100 finance directors between October and November 2007, the research revealed that just under 7 per cent would close existing schemes and replace them with personal accounts.

With 4.4m private sector pension scheme members, Fidelity said this equated to 300,000 losing their current company pension.

Simon Frazer, president of investment solutions group for Fidelity International, said: "The government's original intention for personal accounts was to complement rather than compete with existing pension provision, but our findings reveal this will not be the case. There is clearly some confusion for companies not knowing what to do next. We recognise that everyone is striving for the same goal but action needs to be taken now to mitigate the risk of the pension crisis deepening."

The research also revealed that in addition to the 300,000 people at risk, an additional 11 per cent of employers say that they will keep all their existing employees in the company scheme, new joiners will only be offered personal accounts, with considerably lower contribution rates.

Furthermore, Fidelity revealed that the current landscape of workplace pensions is one of confusion and mixed messages. For example, companies view the principle reason for providing a pension as "to allow employees to retire with dignity", yet more than 50 per cent believed their current DC schemes will not provide sufficient retirement income.

Rebecca Taylor, managing director at Peterborough-based Dunham Financial Services Limited, said: "I think it is worrying if employers do say they will shut an occupational scheme and switch to a personal account but I suspect it depends on the level of contribution the employer is already paying. The employers we deal with are paying a higher contribution, but do so voluntarily. I do not see why they would choose to reduce that in a cost-saving exercise when they are already voluntarily paying something that they do not have to."

She added: "If an employer is paying 3 per cent into an occupational scheme then what difference does it make if they switch to a personal account, it is not necessarily a bad thing it depends on the occupational scheme."