Companies prioritise DB over DC - Hewitt
UK - Members of defined contribution schemes are missing out on up to 70% additional retirement income because of lack of efficiency in administration, according to consultancy firm Hewitt Associates.
Looking at 106 defined contribution (DC) schemes with a combined membership of over 1.1 million, Hewitt found in its fourth annual DC survey "many DC schemes are not as efficiently run as they could be".
"Many are failing to introduce simple mechanisms that could increase member future retirement income by 70%," Hewitt added.
Examples for some of these mechanisms are salary sacrifice, matched contributions, a contribution structure which automatically escalates with age, active management or offer the open market purchase of annuities at retirement.
Chris Caims, DC specialist at Hewitt Associates, found one of the reasons behind this prioritisation is the complex administration of defined benefit.
"Many sponsors and trustees are being forced to make managing their defined benefit (DB) scheme risk a priority over maximising future benefits in their DC scheme," he explained.
Another issue with DC schemes is employees are not taking control of their retirement savings, "trustees were still making most of the decisions".
In other news, BlackRock has announced the acquisition of the business of dc-Link, the formerly-owned Alexander Forbes defined contribution administrator.
Alexander Forbes International stated in its 2006 annual report the UK-based DC Link Administration business, acquired in 2002 from Schroder Pensions, "incurred a trading loss for the year".
"It continued to make inroads into the market and grew its members under administration by 40% during the year. Despite this, the division remains unprofitable and strategies have been put in place to ensure that there is growth into the future" said the firm.
BlackRock has stated coupled with the recent additions to further strengthen the UK DC team, this purchase completed the launch of its target-driven investment (TDI) approach.
The Engineering Employers' Federation Staff Pension Fund (EEF) appointed dc Link in January as third-party pension administrator for its multi-employer DC plan.