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More funds going into workplace pension schemes

Both employers and employees have stepped up their level of investment in defined contribution pension schemes over the past two years.

A survey carried out by consultants Mercer found that, since 2007, employers have increased their contributions to defined pension schemes from 6.8 per cent on average to 7.25 per cent.

Employees have followed suit, raising their contributions from an average of 3.6 per cent to 4.65 per cent.

The figures represent an overall rise in contributions of 1.5 per cent to 11.9 per cent.

The survey took in some 345 UK employers whose pensions schemes have 1.2 million members between them.

The majority of those employers questioned (92 per cent) said that they have no plans to reduce contributions in the near future despite the tough economic times.

Just 2 per cent have suspended contributions on a temporary basis, while only 1 per cent reported that they had temporarily cut contributions.

Many employers (78 per cent) cited the value of the schemes to employees as the most important factor in maintaining high levels of contribution.

With a general and growing trend away from defined benefit to defined contribution schemes, firms appear conscious of the need to support the new pension provision they are offering their staff.

Tony Pugh, 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.”

But he added: “The switch from defined benefit to defined contribution pension still needs to be carefully managed. Educating employees on what DC schemes can offer and how much contribution is required for members to enjoy a comfortable retirement remains an urgent task.

“Employers should be encouraged to acknowledge that in order to avoid being faced with an aging workforce that is without the means to retire, greater emphasis should be placed on educating and communicating with DC scheme members.”