Employers’ concerns about the adequacy of defined contribution (DC) pension adequacy are growing, with just over a quarter (27 per cent) believing their DC pension provision will enable their employees to have a comfortable retirement, research from WTW has found.

The consultancy’s annual DC Pensions & Savings report showed that 82 per cent of employers wanted to do more with their DC pension provision than just meet compliance or be comparable to other employers.

Furthermore, more than half (51 per cent) wanted to specifically address retirement adequacy over the next two years.

To be able to do this, nearly half (48 per cent) of UK employers were monitoring retirement adequacy as part of their plan design, up from just over a third (34 per cent) in 2015.

Previous research from WTW on employee attitudes found they were also concerned about their retirement savings, with 31 per cent believing they will not be able to retire before the age of 70, up from 16 per cent in 2019.

While more than half (56 per cent) of employees were confident about their retirement, 79 per cent admitted they were under-saving for it.

WTW has called on employers to auto-enrol their new employees at the highest matching contribution level in their scheme, with 86 per cent of employers with matching contribution schemes auto-enrolling their workers 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,” commented WTW head of DC consulting, Helen Holman.

“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 reduction in investment charges for DC schemes, which have fallen from an average of 37 basis points (bps) in 2020 to 30 bps.

Master trusts (26 bps) and large employer schemes (28-30 bps) have the lowest charges, although WTW warned that focusing too heavily on achieving the lowest possible charges could 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.”

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