Only one in four employers believe that their DC pension will provide a comfortable retirement for their employees.
WTW’s annual Defined Contribution Pensions & Savings report found that this pensions adequacy is an increasing concern for employers, with the majority (82 per cent) saying that they want to do more with their pension plan than simply comply with regulations or match provision by competitors.
The report found that one in two employers (51 per cent) said they specifically want to address this issue of retirement adequacy in the next two years; with a similar proportion saying they are already monitoring retirement adequacy as part of their plan design. WTW says this figure is up from a third in 2015.
This 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, which may not deliver the best longer-term outcomes for employees.
Separate WTW employee research conducted earlier year shows that employees are also concerned about their retirement savings.
The Global Benefits Attitudes Study found that a third (31 per cent) do not now think they will be able to retire before the age of 70, which is up from 16 per cent in 2019. Little over half (56 per cent) of the employees surveyed are confident about their retirement and 8-in-10 (79 per cent) 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 per cent) with matching contribution schemes auto enrol employees at the minimum contribution level.
WTW head of DC consulting Helen Holman says: “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.”
When it comes to charges Holman adds: “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.
“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.”