From IDS Pensions Bulletin 213, March 2008

Looking at DC contributions and funding levels

An analysis of the contributions being paid into 57 trust-based DC occupational pension schemes shows that the annual average contribution paid in respect of an active member was £2,633. The average fund built up by an active or deferred member in 55 of these schemes was £9,915.

Using the data given in individual DC pension schemes latest annual reports and accounts, we collected the amount of all contributions being paid over a 12-month period into a DC scheme including therefore contributions paid by the employer, by the employees in active membership, any payments of age-related rebates from HMRC and any transfers from a DB section operating under the same trust. The overall total amount was then divided by the number of active members in each DC scheme. An overall average annual contribution was found by dividing the total contributions from all sources (£451,057,000) by the total number of active members as averaged over the relevant 12-month period (171,315) giving the overall average contribution of £2,633.

Sources of contributions

The table gives a breakdown of contributions by source. It shows that the importance of age-related rebates paid by HMRC in respect of employees who are contracted out using the protected rights test continues to diminish in importance. Also greatly diminished is the importance of transfer credits made from a DB section to a DC section under the same scheme trust as pension fund surpluses have reduced or disappeared. The table shows that overall the employer pays £2.59 in contributions for each £1 paid by the employee.

Membership levels

The total number of active members in the sample of DC schemes rose by the end of each accounting period compared to the number at the start – there number rose from 161,981 to 180,648, an overall increase of 11.5 per cent. This was not universal, however, with increases in the number of active members over the accounting period being noted in just 33 of the 57 schemes.

DC fund values

The information provided in scheme annual reports and accounts includes the net asset value of a scheme’s money purchase fund at the start and end of each accounting period. Assuming in any particular scheme that the obligation to provide a pension income is discharged in full by the fund at the time an active or deferred scheme member becomes a pensioner, the average value of each active and deferred member’s pension pot can be obtained by dividing the net asset value of the fund by the total number of active and deferred members. In total the number of active and deferred members of 54 schemes was 278,219 and the aggregate net value of the pension funds was £2,758,612,000 giving an average DC net fund per member of £9,915.

What’s in IDS Pensions Bulletin 213