DC ‘too low’
UK employers offering defined contribution (DC) plans, contribute less to their employees’ pension than they would do if running defined benefit (DB) schemes, according to a survey by consultants Towers Perrin.
Based on the responses of 81 major UK employers, the survey highlights that only 4% contribute more than 15%to employee pension plans and 28% contribute less than 5%. The contribution rates of more than half of the participants are between 5% and 10%.
“Contribution rates to DC plans are often a lot less than the DB they have replaced. Typically, a good DB plan would cost employers upwards of 15% and with falling long-term bond yields and improving mortality, the position is worsening from the DC plan members’ perspective,” says Bruce Moss, principal at Towers Perrin in London. Only a few employers provide modelling and projection tools to enable employees to plan adequately, say the consultants.