Survey finds low level of contributions in money-purchase plans

A survey of 288 companies by employee benefits consultants William M.Mercer shows that contributions into defined contribution (money purchase) schemes are inadequate to provide a decent level of pension at retirement.

The survey found that on average employers were paying 6.25% of pay into schemes and employees were contributing 3.5%. These figures were slightly up on earlier surveys by Mercer which found rates of 5.7% for employers and 3% for employees.

Jonathan Gainsford, European partner at William M.Mercer said that: "On average, total contribution levels for employers and employees are less than 10% of pay. A figure of 15%-20% would be more realistic to secure pensions - especially in the current environment." Gainsford highlighted "improving longevity, the decline in interest and annuity rates and worsening returns on investment" as the key factors affecting the need to increase contribution rates.

He also warned that "Many people will be blissfully ignorant of the level of benefits they are going to get." The Mercer survey found that 67% of the companies surveyed did not automatically provide scheme members with projections of their likely retirement benefits.