Vast majority of pension sponsors maintained contribution levels during Covid-19

More than 9 in 10 (92 per cent) companies with defined contribution (DC) pension schemes did not reduce their contributions during the Covid-19 pandemic, according to research by CBI and Mercer.

The study found that “almost all” defined benefit (DB) scheme sponsors also maintained their contribution levels, despite 41 per cent reporting that their cashflow had been negatively impacted.

Furthermore, 86 per cent said they saw a ‘strong business case’ for providing competitive workplace pensions, with the same proportion believing they had a moral obligation to help their staff save for retirement.

Over three-quarters (76 per cent) of senior executives felt that contribution rates should be higher than the current 8 per cent minimum, while 65 per cent thought that businesses should pay more than the minimum into auto-enrolment schemes if they had the means.

Currently, 82 per cent of businesses offer contributions above the statutory minimum as part of their employee benefits package.

More than three-quarters (78 per cent) supported the raising of auto-enrolment contribution rates over a 5-year period, although less than half (47 per cent) felt it should happen over the next two years.

Furthermore, while 62 per cent of senior executive believed a contribution increase in the next five years should apply to businesses, 35 per cent did not think the government should increase the statutory minimum contribution rate for employers in the next five years.

Nearly three-quarters (74 per cent) thought businesses should do more to engage staff with pension saving, while 87 per cent said the government should prioritise educating people about the importance of pensions over the next two years.

“The vast majority of firms providing both DC and DB schemes maintained the amount that they pay in because they value the importance of competitive workplace pensions, despite the disruption caused by Covid-19,” commented CBI director of skills and inclusion, Matthew Percival.

“Businesses know that they have a vital role to play in offering advice to employees about saving for retirement. It’s also crucial that the government educates people about the importance of having a pension.”

Mercer partner and trustee leader, Tess Page, added: “It is reassuring to see that, despite multiple pressures on businesses, support for pensions remains undimmed.

“However, many DC schemes are still a long way off providing good retirement outcomes and without firm action to improve contribution and engagement levels the intergenerational pension gap risks widening further.

“Now more than ever, those responsible for pension schemes must work together to ensure the right outcomes for all their stakeholders.”

The research also assessed schemes’ readiness for the Taskforce on Climate-related Financial Disclosures' (TCFD) requirements, finding that 47 per cent of DC scheme sponsors thought it would help savers engage with their savings and 57 per cent of DB sponsors felt it would improve communications between trustees and employers.

However, just 8 per cent of trustees and 5 per cent of employers said that they understood the new requirements.

“Aspirations for incorporating ESG more substantially into pension scheme management are high, but the pace of change has been slow,” said Page.

“Many schemes are unsure where to start, but fortunately relatively small steps can make a difference, including simple assessments to consider what actions will deliver most impact.”

Meanwhile, a third (33 per cent) of DB scheme sponsors said that the new DB funding code was likely to increase the contributions they would need to make.

Despite the concerns, over three-quarters (76 per cent) of pension managers who thought the new code would lead to an increase in cash contributions have not taken any actions to pursue alternatives to cash, such as enhanced security.

Less than one in 10 (8 per cent) said they understood what behaviours or actions were likely to lead to investigation and prosecution by the regulator, following the introduction of the two new criminal offences.

Percival concluded: “Firms with DB schemes are grappling with the administrative burden of new regulations. They face an uphill battle to maintain their pension schemes while also investing in company growth.

“Employers need clarity from government and The Pensions Regulator about their responsibilities so that they can continue to protect member benefits whilst growing their business.”

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