Aon senior consultant Karina Klimaszewski says that with only two in five DC pension members thinking they are saving enough for the future, it is time take account of their wider financial context.
When DB pensions dominated workplace pension provision, employers took on most of the risk to ensure that members received enough post-retirement. Since the sponsor shouldered the investment risk and bore most of costs, saving for a pension rarely conflicted with an employee's other financial commitments pre-retirement.
As DC schemes have replaced their DB counterparts, members have been burdened with responsibility for their pension outcome. If they do not contribute enough, or returns on their savings are poor, they could be left with an inadequate retirement pot.
It is no surprise then that just two in five respondents to the Aon 2018 DC and Financial Wellbeing Member Survey1 thought they were saving enough for the future.
A decade ago, pension communications used to be long paper documents issued infrequently. With DC members taking on more responsibility for their pension, they need help to understand the key decisions and communications need to reflect this. This could mean documents with clear calls to action, helping members to see how what they do now can impact their retirement outcomes.
The best schemes now also consider the context in which individuals make these decisions.
Competing financial challenges
Aon's survey revealed that members had competing demands on their finances. Nearly two-fifths (39%) say debt is preventing them saving more for retirement. Around a third of early- and mid-career employees say they cannot come up with £1,000 in an emergency, so could be in real financial distress in the event of an unexpected financial cost, such as a car breakdown or boiler repair.
Whether it is deciding how much to save, when to start drawing on DC funds, or how to draw their funds, the wider financial context for an individual is key to their decision making.
Click here to learn more from Aon on how to improve member outcomes for DC pensioners
1. Source: aon.io/2VBXEcp.