Mercer research: Employer pension scheme contributions frozen at 7.2%

Employer pension scheme contributions have been frozen at an average of 7.2% since 2009, according to research by Mercer.

The research analysed the defined contribution (DC) pension scheme offerings of more than 300 UK organisations, representing some 1.3 million employees and £14.3 billion in assets.

It also found that pension scheme member contributions have dropped from 4.6% to 4.2% since 2009.

Annuity rates have increased by an average of 20% since 2009. This increase has meant that someone with a DC pension scheme of £200,000 at age 65 can now only expect to get an annuity of around £5,800 a year, compared to 2009 when they could have got £7,000 a year, according to Mercer.

Tony Pugh, European head of DC consulting at Mercer, said: “When considering the financial and regulatory pressures pension schemes are facing, the stagnation in employer contributions does not come as a big surprise.

“Once organisations start to feel the impact of auto-enrolling swathes of employees there is even a risk of their contribution levels dropping in the short term. With a double-dip recession looming, things are likely to get worse before they get better.

“We expect, however, that rates will trend upwards again over the long term, as employers start to recognise that lowering DC contributions will change the workforce profile as a result of older employees having to work longer. Equally, employee pressure to increase contributions is likely to have an impact.

“The impact on individual members is significant, especially for those about to retire. Members should keep a close eye on how their pension pot is invested and make sure to shop around for annuities to get the best out of their retirement savings.”

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