FTSE 100 prepared to pay 10% in DC pension contributions

FTSE 100 employers with defined contribution (DC) pension schemes are prepared to pay an average of 10% of salary into employees’ pensions, according to consultancy Towers Watson.

Its annual FTSE 100 Defined contribution pension scheme survey, which questioned 90 of the FTSE 100 employers, found that, where employers provide the same contribution rate for all members, their contributions average 9.3% of pensionable pay.

The research also found:

  • In three-quarters (74%) of schemes, annual management charges (AMCs) are less than 0.4% of the member’s account balance where they remain invested in the default option, compared with 53% that said the same in 2012.
  • 67% of contract-based schemes offer more than 50 investment choices, whereas 75% of trust-based schemes offer between five and 15 choices.
  • 47% of trust-based schemes have at least one member in five invested outside the default option, while only 23% of contract-based schemes said this.
  • Where organisations automatically enrol staff into pension schemes, more than 90% usually stay in.
  • 72% of FTSE 100 employers that have reached their auto-enrolment staging dates reported that more than 90% of new employees stayed in the pension scheme.
  • More than a quarter (27%) of respondents have closed a defined benefit (DB) pension scheme to existing members as well as to new entrants, up from 4% in 2010.
  • 34% have no employees accruing pension benefits in a DB plan, including 27% that used to but have now completely closed their schemes.

Nico Aspinall, head of DC investment at Towers Watson (pictured), said: “Sometimes, more choice can mean less choosing. Selecting an option from a long list can appear more daunting.

“One-third of contract-based schemes now offer a narrower core fund range alongside the full menu in order to combine a manageable choice for most members with greater flexibility for experienced investors.”

Will Aitken, senior consultant at Towers Watson, added: “Employers with matching designs typically put a little more money on the table but may expect to spend less of it, [because] not all employees will choose to save enough themselves to benefit in full. 

“Under matching scales, employers match employees’ contributions at least pound for pound, providing an incentive for members’ to put more of their own money aside. This will generally produce bigger pensions where employees are engaged and smaller pensions where they are not.

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“Some employers like to target money on employees who demonstrate that they value pensions. For people who find themselves put into a pension scheme automatically, staying on auto-pilot can mean missing out. 

“For most large employers, new minimum contribution rates are significantly below what they chose to offer when it was up to them whether they provided a pension at all. However, many of those with matching scales will not be able to put employees onto the lowest rung once minimum contributions are fully phased in.”