The firm issued the warning as a report issued today by the Pension Institute concluded that DC schemes are being undermined by lack of attention by sponsoring employers and the passive attitude of members to making investment decisions.
Aon Consulting, who co-sponsored the report, believes that a member’s investment strategy is one of the key decisions that determines the eventual size of the benefits realised on retirement. Despite this, 94 per cent of members in DC schemes accept the default option, according to the report, believing it to be appropriate for themselves. However, in many cases too little thought is put into deciding what the default fund should be and many employers with DC schemes are stopping well short of offering suitable support to their employees to enable them to invest appropriately, due to the perceived risks of ‘giving advice’. All of which could result in severely disappointed employees at their time of retirement.
Aon Consulting head of defined contribution pensions Paul Macroat says:
“There are many challenges facing the pensions industry as employers continue the shift to DC arrangements. The Pensions Institute report highlights the potential pitfalls that lie ahead for employers with DC offerings. Sponsoring employers need to work with their advisers to deal with the issues raised by the report promptly to ensure that scheme members all invested appropriately to their needs and thus can have well placed confidence in their employer’s arrangements.”