Perhaps the stand-out fact is the falling contribution levels to defined contribution (DC) schemes. DC arrangements are very much in the ascendancy following the slow decline of guaranteed pension benefits under defined-benefit schemes, and this is therefore concerning. This, as the NAPF correctly identifies, may well be as a direct result of so many new savers (via auto-enrolment) being placed in pension schemes at the legal minimum level over the last few years. But will this continue?
The auto-enrolment legal minimum level is due to increase in 2017, with a further hike in 2018 — so that will go some way to correct this reversal. Yet even the 2018 level of minimum savings is likely to produce only a very small pension outcome for most savers. Given this employers and employees would be well advised to review their scheme contribution levels on a regular basis.
The facts and figures
Defined-benefit schemes
- This year’s survey showed 50 per cent of DB schemes are open to future accrual among private and ‘other public sector’ schemes, this rises to 53 per cent when only private sector schemes are taken into account.
- Only eight per cent of private sector DB schemes were still open to new members this year compared with 12 per cent in 2013.
- The average pension paid to DB scheme members by respondents was £8,071, up slightly on 2013 from £8,010.
- The overall percentage of DB scheme assets invested in equities continued to decrease in 2014. Although it is important to note that asset allocation behaviour is influenced by scheme size and status (open or closed).
Defined-contribution schemes
- The average contribution rate continued its slow downward trend to 11.7 per cent (12.5 per cent in 2013). This consisted of 7.6 per cent coming from the employer and 4.1 per cent from the employee. This apparent fall in contributions is due to the sheer volume of new savers joining schemes as a result of automatic enrolment, where their contributions are currently running at the minimum rate.
- More than two-thirds (67 per cent) of schemes responding to the survey operate on a matching contribution basis.
- 33 per cent of employees received the minimum employer contribution and 43 per cent* of employees received the maximum employer contribution.
*The executive summary confirms that NAPF is referring to the maximum employer contribution on the matched contribution basis only.
