Pension holders ‘missing out’

PENSION holders on defined contribution (DC) schemes could be missing out on significant amounts of retirement income.

This is according to a survey conducted by Hewitt Associates which found many DC schemes are not as efficiently run as they could be and many are failing to introduce procedures that could considerably increase member retirement income.

DC pension schemes are those where a fund of money is built up for members to provide for retirement.

The survey found that a large number of schemes do not use three features such as matched contributions or a contribution structure which automatically escalates with age or active investment management.

Hewitt said, combined, these features could increase future retirement income by up to 45%.

The survey also foundthat the average employer contribution is 6% of salary and 4% of salary from the member.

Hewitt said that it is worrying that the average contribution has not increased in recent years.

Director at Hewitt Rachael Ingle said: “Employers, trustees and members could all be doing more to improve efficiency and value for money, but many trustees are focused on reviewing their investment manager and are not spending enough time looking at expected benefit levels at retirement, the benefit of Additional Voluntary Contributions (AVCs) and how their investment strategy, including life styling, might help them get there.

“Our survey found that, despite the best intentions, DC schemes had not sufficiently persuaded employees to take control of their retirement savings.”

The survey also found that a third of employees who were offered membership of a DC scheme declined the invitation. This means they are potentially relying only on the state pension at retirement.