Average contributions to UK defined contribution (DC) pension schemes have increased by 1.5% over the last two years despite the economic downturn, according to research by Mercer.
The susrvey revealed that since 2007, employers have, on average, increased their contributions from 6.80% to 7.25%, whereas member contributions have increased from 3.60% to 4.65%.
Furthermore, despite cost containment being high on most UK employers’ agendas, the majority of survey participants (92%) have decided not to make any reductions to DC contributions in the near future.
Only 4% are considering making any such changes, just 2% have temporarily suspended contributions and as few as 1% of employers have temporarily decreased contributions.
The survey looked into the DC pension offerings of 345 UK companies, representing some 1.2 million members and £10 billion in assets under management.
Tony Pugh, UK head of defined contribution pension services at Mercer, said: “It is encouraging to see this increased level of commitment to DC pension provision. It reflects a maturing attitude to DC pensions as it becomes the most prevalent form of provision in the UK.”
Auto-enrolment and personal accounts
Almost all (95%) of survey participants offer employees voluntary membership of the company’s DC plan, while more than half (53%) target a take-up rate of over 90%. However less than a third (29%) achieve this. Nearly half (41%) of the plans surveyed have a take-up rate of less than 60%.
Half of participants believe the introduction of personal accounts in 2012 will lead to increased costs. As a consequence, 45% of participants are considering introducing auto-enrolment during the next two years. However, 23% of survey participants have not yet considered the impact of personal accounts on their business.
Steve Charlton, a principal and senior consultant in defined contribution pension, said: “The introduction of personal accounts will have a considerable impact on company remuneration budgets and the only way to avoid a shock is to start thinking about how to measure and mitigate the risk now.”
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