04 December 2006
The contributions the UK's largest companies are making to
defined contribution pensions schemes have increased by over 10 per
cent in the last two years, according to new research by
consultants Watson Wyatt.
The average pension contribution from FTSE 100 employers to
defined contribution (DC) schemes has increased to 9.4 per cent of
an employee's salary, from 8.5 per cent in Watson Wyatt's 2004
survey.
Watson Wyatt's 2006 FTSE 100 Defined Contribution Pension Scheme
Survey finds the combined - employer and employee - contributions,
assuming employees take advantage of employer matching, is on
average 13.7 per cent of salary.
Two-thirds of FTSE 100 DC pension plans are structured with
"matching member contributions", whereby the employer pays more if
the employee contributes more than the minimum. The average total
employer contribution for plans offering matching member
contributions is 10.1 per cent of salary, assuming the member takes
full advantage of the employer match. Where no matching member
contributions are offered, the average employer contribution is 8.1
per cent of salary.
"There is a clear trend towards newer DC schemes and those that
have been recently reviewed and redesigned to have higher employer
contribution rates and we expect this trend to continue," said Gary
Smith, a senior consultant at Watson Wyatt. "With a growing
proportion of the workforce at many companies now members of DC
plans, employers are investing more in ensuring that the pension
benefits they offer meet the needs and expectations of their
employees."
The Watson Wyatt survey found that membership take-up rates vary
enormously across FTSE 100 companies. While over half the companies
have more than 80 per cent of eligible employees joining the
pension scheme, some 18 per cent have take up rates of less than 20
per cent of employees.
"This may be due to low levels of employee engagement and
awareness," said Gary Smith. "There is also anecdotal evidence of a
correlation between low take up rates and a high proportion of
female employees, part-time workers and/or high levels of turnover.
Employers are increasingly utilising automatic enrolment, whereby
employers have to decide to "opt-out" rather than be required to
complete and return an application form in order to join the
scheme. There is a clear trend for lower take up rates for
companies without automatic enrolment."
