The latest pensions research from IDS looks at the contribution levels being paid into trust-based defined contribution (DC) schemes. Our research found that in April 2008 the average total annual contributions paid in respect of an active member amounted to £3,874, which equates to 15.7 per cent of mean earnings in the ONS Annual Survey of Hours and Earnings. This is almost double the total level of contribution which will be required as a minimum for Personal Accounts when they are fully introduced.
There are many individuals, however, who do not currently benefit from employer-sponsored pension provision and it is these individuals that the Government is hoping will form the membership of Personal Accounts. They may, however, need convincing that this is the best option for saving for retirement when, according to Aon Consulting, the UK’s DC pension assets have lost 35 per cent of their value – £140 billion – since the credit crunch began to bite.Education will be the key – in particular getting the message across that pensions are a longer-term investment. With this in mind, in February 2009 the Department for Work and Pensions published a report, Saving for Retirement: Implications of pensions reforms on financial incentives to save for retirement. This looked at the impact of Personal Accounts on those making savings into a defined contribution pension after their introduction. It found that over 95 per cent of savers could expect returns which, after taking inflation into account, would be greater than the cost of their contributions, with over 70 per cent seeing their contributions double. Others disagree with this finding.