Boomtime for defined contribution pensions as final salary schemes are abandoned

The proportion of employers offering defined contribution pensions schemes has risen considerably as defined benefit (final salary) schemes continue to close, according to new research.

The annual survey by HR consultants Hewitt Associates found two-thirds of open employer-sponsored pension schemes are now defined contribution, compared with 55% in 2005,

The results also show the average size of schemes has increased, with more than a third of schemes controlling assets of more than £10m. In 2004, just under a fifth of schemes were this size.

It seems the new government focus is succeeding in raising awareness of pensions issues with employee take-up rates increasing to six out of 10 employees, compared with less than half in 2005.

The survey results also showed that employer contribution levels can act as a threshold for employee interest, with schemes that offer less than 5% employer contribution recording a 42% take-up, while companies contributing 10% or more have a 79% take-up.

Total contribution rates have remained unchanged since 2005 at 11% (4% employee, 7% employer). However, employers with established defined contribution schemes have increased their contributions by 50% since 2005.

Hewitt’s survey also indicated that employers that provide a defined contribution scheme to which employees are automatically enrolled typically pay higher contributions. The average employer contribution for auto-enrolment schemes is 8% compared with 6% for opt-in schemes.

Tony Baily, defined contribution pensions specialist at Hewitt Associates, said: “Now is clearly a good time for employees to enrol in their company pension scheme and maximise the benefit on offer from their employer.

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