UK - Continually low take up of defined contribution schemes despite increased education efforts by employers is putting the provision of occupational pensions at risk, warns Hewitt Associates.
Hewitt’s 2005 Defined Contribution and Additional Voluntary Contribution scheme survey revealed while overall employer contributions have risen, less than half of those employees eligible are joining their occupational DC scheme.
“This is worse than in 2004, so interest is actually declining,” said Chris Cairns, DC specialist at Hewitt. “Employers have done a great deal to encourage participation and engage with employees on pensions. Our research shows that employers are becoming frustrated that their commitment to providing a pension for employees and the burden of costs involved are not being valued highly enough.”
Shee added: “Unless employees begin to take control of their pension arrangements and take-up and contribution levels improve, there is a real risk that companies will increasingly question why they are providing pensions at all.”
The survey, which polled more than 277 firms representing more than 460 pension schemes, found for the first time more open DC schemes than DB schemes. In addition, the DC schemes now have more than £2bn in assets with 9% recording assets of more than £50m. Hewitt said in 2004, not one scheme surveyed recorded assets of this level.
Contributions paid into DC schemes by employers rose 1% from last year to an average of 7% with employees contributing around 4%.
But Hewitt said more than 60% of schemes surveyed showed an average contribution rate that falls short of the 12% it calculates an employee aiming for a two-thirds final salary pension equivalent should be saving per year over a 40 year working life.
“Current contribution levels fall short of those required to fund benefits that many aspire too,” Cairns said. “Our survey results suggest that ineffective communications perpetuating a mismatch in overall levels of contribution and expectation on retirement.”
Senior consultant Kevin Wesbroom added: “The results suggest that at present, the majority of members still do not understand or value DC schemes and are somewhat apathetic towards them. This has got to change.”
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