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&#39Switch to DC is set to rebound on employers&#39

Employers will suffer a fallout from the switch to defined-contribution pension schemes when today&#39s workers find out they have not saved enough to retire, says Hewitt Bacon & Woodrow.

Research by the employee benefits consultancy shows only 3 per cent of employers think DC members have a good understanding of the funding levels needed to build sufficient retirement savings.

The survey of over 250 organisations and nearly 500 schemes shows the average contribution paid into DC schemes is around 10 per cent of salary, split 4 per cent from employees and 6 per cent from employers. This means the average employee will have to work until 72 to retire on two-thirds of final salary.

Eighty per cent of employers said employees in DC schemes do not understand that responsibility for retrement funding has been passed to them.

The consultancy says even though half of schemes offer interactive modelling tools and a wide variety of informational booklets, workers have still not got the message that they are responsible for their own retirement fund.

Senior consultant Kevin Wesbroom says: “These figures show the workforce planning timebomb is ticking. While the casualties will be the scheme members themselves, employers will also suffer from the fallout of dealing with a generation of employees who do not want and cannot afford to retire.”

Origen director of pensions Michelle Cracknell says: “We have first-hand experience of this with a company we switched from DB to DC in 1988. People retiring now are up in arms saying they did not know the employer had cut their pension so drastically. This is not a message that is getting through.”

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