Employees need to double pension contributions

Millions
of workers could see the value of their pensions halved unless they double
contributions, a report warns today.

The
report by pensions expert William M Mercer covers the stock market-linked
defined contribution schemes, under which retirees receive only what they and
their firms have paid in.

These
are more economical for employers and are now the preferred option for many
companies to offer new employees.

Mercer
blames increases in life expectancy, tumbling stock market investments and low
annuity rates for contributing to projected pensions being halved in the last
ten years.

The
figures show that a 30-year old entering a defined contribution scheme in 1991,
would receive a pension of £16,500 at age 65, compared to someone joining now
who would get only £7,200.

“Pension
shortfalls will hit members of defined contribution schemes particularly
hard.  In times of low investment
returns and annuity rates, they are very much on their own,” said Jonathan
Gainsford, European Partner of William M. Mercer.

He
added, “Members of final salary schemes are better protected as they have
guaranteed benefits – provided their scheme has enough money in it.  It is their employer who normally bears the
risks.”

Gainsford
advises workers on these pensions to raise their contribution levels above 10
per cent to between 15-20 per cent.

www.wmmercer.com

By
Karen Higginbottom

Comments are closed.