Most firms in the UK that offer defined contribution schemes did not reduce their pension contributions during the pandemic, despite the difficulties of COVID-19, new data reveals.
These schemes are where the employee's and employer’s contributions are both invested, and the proceeds used to buy a pension and/or other benefits at retirement.
The latest CBI/Mercer Pensions Survey, completed by 221 firms, found that most employers (86%) overwhelmingly continue to see a strong business case for providing competitive workplace pensions.
The same proportion feel they have a moral obligation to help staff to save for retirement.
Meanwhile, the majority (76%) of senior executives who responded to the survey believe that business contribution rates higher than the current 8% statutory minimum will be required going forward, to ensure that employees have sufficient income when they retire.
“Employers are eager to build on the stand-out success of auto-enrolment and know that higher business contributions will be needed in future,” said Matthew Percival, CBI director of skills and inclusion.
“But with firms only beginning to recover from the pandemic, and while they’re prioritising investing in more immediate pay and conditions to address labour shortages and rising living costs, any increase must take place over the next five years rather than in the short-term,” he added.
Tess Page, partner and trustee leader at asset management firm Mercer, said “many defined contribution schemes are still a long way off providing good retirement outcomes and without firm action to improve contribution and engagement levels the intergenerational pension gap risks widening further".
Meanwhile, the UK government has said that from 1 October, pension schemes with an asset value of £5bn ($6.8bn) or more must report the risks and opportunities that climate change poses to their investments.
This reporting must follow the Taskforce on Climate-related Financial Disclosure (TCFD) framework.
Almost half of businesses with a defined contribution scheme (47%) say that disclosures will be a useful way to engage employees with their future savings.
But understanding of the requirements remains low among trustees (8%) and employers (5%) and businesses feel the cost of publishing compliant TCFD-aligned disclosures will be greater than the government’s estimate of £15,000.
“The government should ensure that the climate impact of investments can be properly measured and compared by creating common standards for green investments,” said Percival.
“This will help pension schemes to meaningfully incorporate environmental, social and governance (ESG) considerations like sustainability into how they are run.”
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