Company directors and consumers hold vastly differing opinions on why companies offer Defined Contribution (DC) pension schemes. These opposing views are a symptom of a “vicious circle” evident in DC that is driving apathy by both employers and employees towards retirement saving. The findings form part of a new report, “The State of DC in 2012” from Hymans Robertson.
Over half of finance and HR directors in Britain’s largest companies say that they run DC schemes to help employees retire on a decent income. By contrast, only 19% of consumers believe this to be the case. The benefits of a DC scheme for recruitment, retention and tax efficiency are the top three reasons consumers believe companies run schemes.
Top reasons for offering a DC pension scheme
|
|
Company Directors
Top 3 Reason
|
Consumers
Top 3 Reason
|
Historically offered, still does so
|
71%
|
29% |
|
Want employees to retire on a decent income |
54% |
19% |
|
A good retention tool |
43% |
57% |
|
A good recruitment tool |
41% |
62% |
|
Because other big companies do it |
37% |
31% |
|
Tax efficient for employees |
30% |
40% |
|
Employees ask them to provide one |
16% |
23% |
While company directors clearly believe in running a scheme to help their members save for retirement, consumers disagree. Less than a quarter (24%) believe that the contributions paid by companies are high enough to secure a decent retirement income.
This lack of belief appears to be translating into consumer apathy towards DC saving. Over a quarter of respondents (27%) said that a good pension scheme makes no difference when looking for a job. A further 57% said that it was not a key factor in their judgement of whether to take a particular job.
This lack of belief and engagement with DC pensions is in turn leading companies to question whether further investment in their DC schemes is worthwhile. Half of company directors cite employees’ lack of appetite for pensions or lack of appreciation of the financial commitment made by the company to pensions as reasons for not increasing contribution rates. In addition, 32% of employers said they would only raise contribution rates if there was a stronger demand from employees.
Commenting on the findings, Lee Hollingworth, Head of DC at Hymans Robertson, said: “DC pensions have become more about providing the opportunity to save for retirement rather than providing a structure aimed at delivering a good outcome. Whilst many companies now see their only duty as being to provide a vehicle for this kind of saving, consumers clearly expect more from their employers.
“At the same time, employees perceive DC schemes as not worth the effort because they won’t deliver in retirement – they are apathetic. In turn, this feeds company apathy with the belief that further investment into DC is questionable. As a result, consumer apathy continues to grow, and so the vicious circle continues.
"With almost a quarter of employees stating that they will be reliant on a company pension in retirement, and auto-enrolment on the horizon, it is essential that consumers and employers start working together now to avoid creating a generation of DC members unable to retire.”
Laying out the case for improvements that need to be made to DC, Hollingworth added:
“There is one final, crucial component as well. The Government must look to clarify or relax the rules on what constitutes savings communication versus advice by companies. This is a clear barrier and one that discourages companies from engaging with their workforce on pensions and other savings vehicles.”
|
