A recent survey conducted by the Association of Consulting Actuaries (ACA), has revealed that most defined contribution pension schemes run by smaller firms are attracting combined employer and employee contributions of less than 8% of earnings.
There is also little evidence they are keeping pace with the increasing cost of building a sufficient pension as lifespans extend.
The ACA survey gathered responses from 404 smaller employers with 250 or fewer employees. According to the Department for Business Innovation & Skills, there are over 1.2 million of these smaller firms which employ over half of the UK’s private sector employees (60%) and generate a half of all private sector turnover (49%), amounting to £1,589 billion per year.
Food for thought.
Equally worrying is the fact that at present, two thirds of the UK’s smaller firms offer no pension scheme at all despite the fact they will be required to auto-enrol their employees into a ‘qualifying workplace pension scheme’ between 2014 and early 2016 under government pension reforms.
Of the firms in the ACA survey without pension schemes, almost all (96%) said cost was the main reason they did not currently provide them. And of those that do, they stated the reason employees did not join their schemes is also mainly because of cost (84%).
Commenting on the survey results, ACA chairman Stuart Southall said:
“Our survey has found savings by both employers and employees into defined contribution schemes generally have failed to keep pace with the cost of building a sufficient pension. Pension contributions into most schemes reporting to this survey need to double on average to at least 15% of earnings if reasonable retirement incomes are to be achieved.”
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