Only a quarter of UK employers think their defined contribution (DC) pension provision will leave their workers with a comfortable retirement, according to research by Willis Towers Watson (WTW).
The insurance and financial services firm’s annual Defined contribution pensions and savings report, which surveyed 112 FTSE 350 organisations and 187 UK employers, also found that DC pensions adequacy is of increasing concern to employers, with 82% of respondents wanting to do more with their DC plan than just meet compliance or offer similar to other employers.
Furthermore, half (51%) of UK employers want to specifically address retirement adequacy in the next two years. In order to do this, half are now monitoring retirement adequacy as part of their plan design, up from a third in 2015.
Meanwhile, the majority (86%) of employers with matching contribution structures auto-enrol employees at the minimum contribution level.
The research also found that investment charges for DC schemes are continuing to fall, now averaging 30 basis points, down from 37 basis points in 2020. The lowest charges are seen by master trusts (26 basis points) and large employer schemes (28-30 basis points).
Helen Holman, head of DC consulting at WTW, said, “The focus on retirement adequacy is increasing, as more employers are looking to expand support for employee decision-making and financial wellbeing. Employers are taking various actions to address adequacy, including enhancing guidance services, improving investment strategies, and analysing retirement outcomes for different groups.
“However, despite these growing concerns, few employers have secured additional funding to improve plan generosity, highlighting the need for better investment efficiency and targeted communication. There are certainly too many DC schemes that are still sitting on high legacy charges for simple equity or fixed income funds, which should be reduced. But once those savings have been made, there’s a good argument for using it create space for other diversified asset classes, such as private markets and illiquid assets.”
