Defined contribution pension schemes offered by small- and medium-sized companies will fall short of...
Defined contribution pension schemes offered by small- and medium-sized companies will fall short of the levels required to provide a comfortable retirement, according to research conducted by Scottish Equitable which surveyed 1,300 IFAs active in the SME market.
At least 75% of IFAs say employer contributions tend to fall when pension plans switch from defined benefit to defined contribution. The research found that this is a consistent trend across a whole spectrum of employers.
"Much publicity has been given recently to the DB to DC trend, particularly among larger employers, but the trend is not solely about employers changing to a different type of scheme," says Margaret Craig, pensions development manager at Scot Eq.
She says its is now apparent that contributions reduce when the schemes switch.
Scot Eq's research results are backed by another survey conducted by Government Actuary Department (GAD). GAD's survey concluded that contributions into DB were almost twice that made into DC plans, averaging 16.1% and 8.5% into DB and DC respectively.
"Our research indicates that SMEs will also reduce employer contributions on a switch to DC thus opening up a significant contribution gap," she adds.
Craig says DC schemes are not an inferior form of pension provision and for younger people and for those who switch frequently between employers.
"But where contributions fall, so do benefits," she warns. "The acid test of any scheme is to ensure adequate contributions from employer and employee to provide sufficient benefits on retirement."
Scottish Equitable carried out the research during a series of 15 IFA pension roadshows held throughout the country during May. The next series of pension roadshows will take place during November.
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