UK – A new survey by Hewitt Bacon & Woodrow has found that only three percent of employers think that members of defined contribution schemes have enough understanding of funding levels.
“The results of its annual survey of DC/AVC schemes show that only three percent of employers think that DC members have a good understanding of the funding levels required to build sufficient savings for retirement,” the firm said.
“These figures show that the workforce planning time bomb is ticking,” said senior consultant Kevin Wesbroom. “While the casualties will be the scheme members themselves, employers will also suffer from the fall-out of dealing with a generation of employees who do not want, and cannot afford, to retire.”
“In addition, the increasing tightening of legislation will mean that managing their ageing workforce will consume progressively greater amounts of HR and management time.”
The survey covers more than 250 organisations and nearly 500 schemes. It found that the average contribution paid into DC schemes is around 10% of salary, split roughly four percent from employees and six percent from employers.
Hewitt said: “Contributions at these levels fall well short of those required to fund benefits that many current retirees aspire to – the mythical two-thirds of final pay.”
“Their outcome is also too dependent on the vagaries of the stock market. The consequence is likely to be that rather than accepting lower benefits, individuals will be forced to carry on working until their pension reaches a sensible level.”
“These findings are a real cause for concern,” said Chris Cairns, DC and investment specialist at Hewitt. “Many employers choose to close their final salary schemes to cap their financial exposure. While they may have achieved this objective, employees have failed to grasp the implications for their retirement plans and are not setting aside anything like realistic sums.”