Only 15 per cent of UK employers surveyed said their objective for providing a DC plan is to ensure their workers save for an adequate retirement income, while 65 per cent said market competitive provision was the main objective. Just 6 per cent said their objective was to comply with legislation.
The survey also revealed employers accepting that DC would not retain staff or help them achieve an adequate retirement income in the way a DB scheme would. It found 86 per cent of employers felt that DB helps retain employees, and 80 per cent believe DB ensures employees have adequate retirement income, whereas for DC those figures fell to just 22 per cent in both cases.
The research found that a majority of employers are not worried about being stuck with staff that are not able to retire, with 58 per cent thinking their typical employee will still be able at the age of 65 and 38 per cent saying it is more likely their workers can retire between 66 and 70. Only 3 per cent believe their employees will have to work until the age of 75 before they can afford to retire.
Towers Watson senior DC consultant Will Aitken says: “At the current time, many employers have focused on what goes into DC – market competitive contributions, rather than what comes out – adequate pensions. The underlying message seems to be that that, like mortgages, employees need to take ownership of their own finances. Of course, the question is whether employees see it the same way.
“Employers need to decide what they want their DC scheme to be, beyond not being DB. Up till now, DC has done a great job of not being DB and can no doubt continue to do so. But given the huge sums of money entering DC schemes, we’re seeing a desire to do better than ‘not DB’.
“Employers do believe they have a role in enabling their staff to retire. That’s not quite the same thing as ensuring their staff will be able to retire. DC is often about providing employees with a framework that offers the possibility of an adequate retirement, rather than the likelihood. As we see the workforce age, we may see employers going further to increase the likelihood of those possibilities – to ensure that they are not left with unwilling employees who can’t afford to retire.”