Average contributions will not give enough support to employees in retirement, according to research by business consultancy Mercer.
The warning comes as the Mercer's 2006 Work & Savings Survey reveals average contributions rates have grown from 9.5% of salary in 2002 to 10.4%.
However, although more than half of people in the survey expect a pension of more than 50% of their pay on retirement, the average employee with 30 years' service is more likely to get just 20% to 30% of pay at current contribution rates.
A survey of more than 400 UK organisations shows employers contribute an average of 6.8% and employee rates have reached an average of 3.6%. The figures mean employees meet one-third of their pension cost and take 100% of the risk.
Tony Pugh, UK head of defined contribution pension services at Mercer, says: "At the current rate, most employees will get more pension through State benefits than their occupational plan, which may come as a surprise to many. The problem is more acute the higher an individual's pay, and the older they are on joining the plan."
He says one way of addressing the inadequacies of the current system is if employers implement more imaginative approaches to their defined contribution pension arrangements.
"Only 13% use salary sacrifice despite its potential to increase the value of member contributions by around 30%, while 'matching' contribution schemes encourage employees to save more, and these offer good value to employers for the additional spend.
"Encouraging employees to do more for themselves is essential and, clearly, good communication and education are vital."
He recommends techniques such as automatic scheme entry, which require member contributions and encourage members to divert part of their future salary increases into the plan.
He says employers could give members better support to shop around for annuities and highlights the legal requirement for UK schemes to operate an open market option (OMO) at retirement.
However, members in 22% of schemes buy annuities from their scheme’s own provider despite OMO and more than 50% of employers provide members with access to financial advice at retirement but almost half of employers do not contribute to costs.
The survey also shows 63% of the defined contribution (DC) schemes have been set up since 2000, which Mercer says shows the rapid pace of change in UK pension provision.
A total of 90% of members choose the default fund, which Mercer attributes to the confusion caused by a choice of more then 50 funds.
Push says: "At one level, offering a simple core plan to the majority of employees and allowing those looking for more choice to opt for another arrangement can be a powerful aide in helping to remove confusion caused by the wide array of choices.
"Such a 'core satellite' approach is also helpful for scheme trustees as they can then concentrate their efforts on the needs of the many without complicating the plan because of the demands of the few.”
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