UK - Firms will face large pay demands unless they make "adequate" contributions to money purchase schemes.
A new study by Mercer Human Resource Consulting shows that average employer contributions to DC schemes are 6% – down from 6.3% in its previous survey two years ago.
But Mercer European partner Tony Pugh said the introduction of projected pension figures in April will make employees take greater interest in contribution rates.
He explained: “Up to now, the reduction in pensions has gone largely unnoticed as, so far, only a minority of members have reached retirement age in these schemes.
“But this is about to change. Under new legislation next year, scheme members will receive benefit projections that will reveal the true extent of the shortfall.”
Using the employee average contribution of 3.3%, Mercer calculated that a 45-year-old man joining a DC scheme would receive a pension of 14% of his final salary when he retired at 65.
This compares to an expected pension of 33% of salary under a typical 60th final salary scheme.
Pugh said: “Contribution levels are not going up, despite the increasing cost of pensions and the need for people to save more.
“Many will face the choice of a longer working life or a smaller retirement income dependent on the state.”
And DC contribution rates are expected to become a growing area of union unrest.
Amicus-MFS pensions officer Bryan Freake warned employers they would face large pay demands unless they started to make “adequate” DC contributions.
Trades Union Congress general secretary Brendan Barber added: “This is further evidence that employers are joining with government to shift responsibility to employees to make their own pensions provision.
“Yet employees cannot afford to make the saving they need to ensure a reasonable income in retirement.”
Mercer surveyed 450 DC schemes from 15 industrial sectors. The schemes have assets of £4.1bn and cover 200,000 employees.
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