The average combined total of employee and employer contributions is above the minimum auto-enrolment (AE) requirements, despite persisting key knowledge gaps, research from MFS has revealed.

The firm’s report, The Road to Better Outcomes, also revealed that younger members appear to be contributing slightly more, with 18-29 year olds having an average combined contribution of 13.3 per cent.

This compared to 12.9 per cent for those aged 30-49, and 13.2 per cent for those aged over 50.

In addition to this, it also found that the majority of members (72 per cent) took no action as a result of the pandemic, with only a small proportion (4 per cent) stopping contributions, highlighting the onus on members to opt out as a key benefit of AE.

However, the firm warned that whilst the combined contributions levels are encouraging, it does not mean the industry can rest on its laurels, stressing that members and sponsors should be encouraged to save as much as possible.

Furthermore, the report highlighted key knowledge gaps, with just 16 per cent of members stating that they are at least somewhat knowledgeable about active management, and 48 per cent feeling they lacked knowledge.

Half of respondents also stated that they thought passive funds were less risky than the market, whilst 28 per cent think they usually have better returns.

MFS UK relationship management team managing director, Elaine Alston, highlighted the investment knowledge gap as "concerning".

She continued: "While passive investments have performed well during the long bull run in the wake of the GFC, with the low-return environment and expected volatility going forward, we need to do a better job as an industry of educating members, enabling them to make informed decisions and be more engaged in their investment decisions.

"Educating members on the benefits of passive and the potential for additional returns that may be available with active management to help them achieve their retirement goals."

However, she also stressed that this conversation needs to "reach beyond" the active versus passive debate, emphasising that there is also a need to engage with members on the responsible investment options available to them.

"This may help to increase their awareness of, and interest in, their DC scheme," she added, noting that almost 50 per cent of respondents did not know whether they had access to these types of investments within their scheme.

This is despite almost one third (32 per cent) of members under 30 stating that they would be willing to contribute more if they were invested in an environmental, social and governance (ESG) fund.

The report also highlighted misunderstandings around ESG funds however, stating that whilst almost two-thirds of members under 50 would be willing to give up at least some returns to invest in ESG, this trade-off is not necessary.

Alston stated: “Doing the right thing when you allocate capital and generating good long-term returns are not mutually exclusive.

"In our view, incorporating ESG considerations into the investment decision-making process is key from both a risk and an opportunity perspective.

"Investing in good-quality, sustainable companies can help provide the above-average returns trustees and schemes are seeking over the long term."

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