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Fidelity research shows lack of confidence in DC schemes

Half of the senior financial executives who took part in a Fidelity survey of their companies’ attitudes to corporate pensions have acknowledged that their defined contribution schemes will not allow employees to retire in comfort.

The vast majority of the 100 UK companies surveyed by an independent consultancy commissioned by Fidelity said they remained committed to providing pensions for their workers. On average, when spread across the entire workforce, including those not in pension schemes, pension provision represents 6.9 per cent of salary costs.

However, this survey shows that the spend is spread unevenly between employees. About 60 per cent of pension expenditure goes to the minority of the workforce in DB schemes. Of the companies polled, 35 per cent of their employees had DC arrangements, while just 22 per cent workers were members of DB schemes. The sample represents one in ten of the UK workforce.

Fidelity International president of institutional business Simon Fraser says: “Finance directors are in the invidious position of knowingly providing many of their employees with an inadequate pension. This may reflect the burden of resolving the DB deficit for so many companies. Employers spend, on average, 50 per cent more on DB schemes than on DC arrangements.

“Against this backdrop, one might expect finance directors to be rushing for the exit – but they’re not. Employers see value in offering pension schemes, but there is a fine balance – they need to find a way to offset their defined benefit scheme legacies by controlling costs and reducing risks – which many are doing with the increasing use of contract based plans.”

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