LONDON, September 10, 2024 – Findings from WTW’s latest research shows that only a quarter of UK employers think the defined contribution (DC) pension provision they offer employees will enable them to have a comfortable retirement.
Half of UK employers want to specifically address retirement adequacy in the next two years
WTW’s annual Defined Contribution Pensions & Savings report shows that DC pensions adequacy is something that is of increasing concern to employers. The majority (82%) say they want to do more with their DC plan than just meet compliance or be similar to other employers.
Furthermore, half (51%) of UK employers surveyed want to specifically address retirement adequacy in the next two years. In order to do this, half of employers are now monitoring retirement adequacy as part of their plan design, up from a third in 2015.
Separate WTW employee research this year shows that employees are also concerned about their retirement savings. The Global Benefits Attitudes Study found that a third (31%) do not now think they will be able to retire before the age of 70, which is up from 16% in 2019. Little over half (56%) of the employees surveyed are confident about their retirement and 8-in-10 (79%) acknowledge that they are under-saving for retirement.
WTW has previously called for employers to automatically enrol new employees at the highest matching contribution level in their scheme, as an effective way to significantly improve retirement savings. However, in reality, the majority of employers (86%) with matching contribution schemes auto enrol employees at the minimum contribution level.
“The focus on retirement adequacy is increasing, as more employers are looking to expand support for employee decision-making and financial wellbeing.”
Helen Holman | Head of DC Consulting at WTW
Helen Holman, Head of DC Consulting at WTW, said, "The focus on retirement adequacy is increasing, as more employers are looking to expand support for employee decision-making and financial wellbeing. Employers are taking various actions to address adequacy, including enhancing guidance services, improving investment strategies, and analysing retirement outcomes for different groups.
“However, despite these growing concerns, few employers have secured additional funding to improve plan generosity, highlighting the need for better investment efficiency and targeted communication.”
WTW’s research also highlighted the continuing fall in investment charges for DC schemes, which now average 30 basis points (bps), down from 37bps in 2020. The lowest charges are enjoyed by master trusts (26bps) and large employer schemes (28-30bps), but WTW has cautioned that focusing too heavily on achieving the lowest possible charges can restrict investment options and returns for savers.
“There are certainly too many DC schemes that are still sitting on high legacy charges for simple equity or fixed income funds, which should be reduced,” said Holman. “But once those savings have been made, there’s a good argument for using it create space for other diversified asset classes, such as private markets and illiquid assets. These usually come with slightly higher charges but can reduce concentration risk and provide strong returns for savers over the long term.”
WTW’s 19th annual Defined Contribution and Savings Survey 2024 contains data on 112 FTSE 350 companies and 187 other leading UK employers.
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A new white paper released today by WTW emphasises that UK employers, pension trustees, pension providers and regulatory bodies need to take steps to protect workers’ futures.
