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DC pension provision comes of age, says Willis Towers Watson

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Defined contribution (DC) pensions have quickly established themselves in recent years as the new normal for Britain’s biggest companies and their employees, research from Willis Towers Watson shows.

But while DC has “come of age” in recent years, with 98 per cent of new employees at FTSE 350 companies joining DC schemes, the report also suggests that DC still has some growing up to do, particularly in areas such as the development of delivery vehicles, contribution designs and member education and support.
 
The study of FTSE 350 companies’ pensions, the biggest of its kind, shows average payments into DC pensions in FTSE 100 companies have quadrupled since 2009, while average assets held in those schemes have increased sevenfold over the same period. Though half (54 per cent) of FTSE 100 companies still offer Defined Benefit (DB) pensions to existing members, this proportion has declined from 84 per cent since 2009, while only a quarter (27 per cent) of FTSE 250 employers still have DB schemes open to existing employees.
 
Richard Sweetman, senior consultant at Willis Towers Watson, says: “The impression we get from compiling this major survey is that the UK’s biggest employers are broadly happy with the scale of their commitment to DC pensions. However, we also see an appetite to look at ways of making arrangements work better, particularly in identifying the best vehicle for delivering DC (as seen in the emergence of master trusts), restructuring contributions to allow wider savings options, improving investment strategies and introducing enhanced member information and support around adequacy and retirement options.
 
“While the ongoing cost of DB will remain a major issue for employers, this survey provides hard evidence of the speed with which DC provision is establishing a dominant role in the UK pensions landscape. It also offers a valuable insight into the issues that are still to be addressed in ensuring this historic shift leads to better retirement outcomes for millions of tomorrow’s pensioners.”

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