Modest returns anticipated on DC pensions
At 11 percent of earnings (seven percent employer and four percent employee) average contributions to occupational defined contribution (DC) schemes comfortably exceed the minimum proposed for Personal Accounts (eight percent of earnings between approximately £5,000 and £35,000 per annum). However, at this level of contribution, if DC schemes are not supplemented by other savings, they are likely to deliver only modest pensions for many, particularly for those with shorter savings histories.
This year’s Capita Hartshead Annual Pensions Administration Survey, covers UK pension schemes, with assets in excess of £220bn and over 6.3m members, in 288 schemes which are run both in-house and outsourced. The results show that the switch to DC provision continues. In total, 47 percent of respondents offer DC to all members, up from 36 percent in 2008. A further 33 percent offer DC to new employees only while just 20 percent do not offer DC at all. Nearly half of the DC arrangements covered by the survey were set up in the past five years. The survey also found that members contribute to administration costs in almost a third of DC schemes.
Debbie White, Sales and Marketing Director at Capita Hartshead said: “Clearly average rates of contribution to DC schemes are too low to provide most members with a decent retirement income. This level could fall further if there is a mass switch to minimum contribution Personal Accounts.”
She continued: “It is essential, therefore, that the Government, the pensions industry and schools and universities work together to increase financial literacy. At Capita Hartshead we are increasingly becoming involved with educational initiatives in the community and this summer we are embarking on a joint project with Sheffield University to raise financial awareness among undergraduates.”
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