Financial Advisory

The case study highlights the challenges faced by defined contribution (DC) pension schemes in ensuring retirement adequacy for their members. A significant issue identified is the stagnation of contribution rates, with the median company contribution remaining at around six percent since 2019. This lack of review in contribution structures is concerning, especially as nearly two-thirds of surveyed trustees and pension managers are unaware of the expected retirement outcomes for their members. The research indicates that while many employers offer additional matching contributions, a substantial number of employees do not take full advantage of these benefits, which could enhance their retirement income. To address these issues, the study emphasizes the need for DC schemes to focus on outcomes rather than just contribution rates. It suggests that companies should utilize the Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards to assess adequacy. Alarmingly, 48 percent of respondents believe their members will not achieve a moderate standard of living in retirement, a figure that may have worsened due to rising living costs. Moreover, the study points out that many schemes still default to a retirement age of 65, which may not align with the increasing State Pension Age, potentially leaving members financially vulnerable in the interim years. The case study advocates for a comprehensive understanding of contribution rates and their impact on retirement adequacy, urging employers to take proactive measures to ensure their schemes can deliver adequate retirement outcomes. By aligning target retirement ages with the State Pension Age and encouraging employees to maximize their contributions, DC schemes can significantly improve the financial well-being of their members in retirement.