Default option on defined contribution schemes 'lets down' workers

24 April 2007
Many employers offering defined contribution (DC) pensions schemes are endangering the future financial stability of their employees by failing to pay enough attention to how they invest in the schemes and the advice they give their staff, a survey from the Pensions Institute has found.

A large proportion of companies are shying away from giving advice to employees on what is the best pensions option for them, leaving 94 per cent of staff to opt for the default option.

The default option will differ from company to company depending on the investment decisions the firm makes and is often poorly aligned with the individual's financial circumstances.

More than two thirds of pension experts thought the typical investment arrangements in DC pension plans do not meet most members' needs, the report showed.

Companies must make sure "any default funds meet the needs of all members, not just Mr (or Mrs) Average", stressed Paul Macro, head of DC pensions at Aon Consulting, which commissioned the report.

Employers and advisers must work together to help staff make the choices best suited to their personal financial needs and give them improved confidence in their pensions future, he added.

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