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  2. DEFINED CONTRIBUTION
October 11, 2021 02:49 PM

DC execs think U.K. government should raise mandatory contribution rates

Paulina Pielichata
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    U.K. executives that oversee defined contribution plans think the government should increase mandatory contribution rates and did not change their approach to running their plans as a result of the coronavirus pandemic.

    A joint survey by Mercer and the Confederation of British Industry, which represents U.K. businesses, also showed that although businesses support an expansion of automatic enrollment, a significant minority currently can't afford higher minimum contribution levels.

    The survey was conducted between June 7 and June 25, among 350 pension fund managers and senior executives, who are responsible for U.K. retirement plans.

    Three-quarters of the survey respondents looked after a DC plan, while 31% of them managed a defined benefit fund alongside a DC plan.

    Almost half, or 48% of respondents, managed a DC plan with less than £10 million ($13.5 million) in assets, and more than 41% of them managed a DB fund with more than £1 billion in assets.

    Three-quarters of senior executives who responded to the survey believe higher contribution rates above the current mandatory 8% of the combined employer and employee rate will be needed in the future to ensure that workers end up with sufficient retirement income.

    Some 65% of senior executives said when businesses can, they should pay more than the minimum rate to support their employees in retirement. Also, 62% of the surveyed senior executives would also like to see a contribution increase in the next five years.

    At the same time 35% of respondents do not think that government should increase the statutory minimum contribution paid by employers at all in the next five years.

    More than 90% businesses that experienced a negative impact on their cash flow due to COVID-19 have not changed their approach to their DC plan or reduced their contributions as a result, the survey showed.

    See more of P&I's coverage of the coronavirus

    DB schemes have demonstrated similar resilience, with 41% of businesses with a DB plan maintaining their cash contributions and not negotiating a temporary pause or reduction in contributions with trustees.

    "Employers are eager to build on the standout success of auto enrollment and know that higher business contributions will be needed in future," said Matthew Percival, CBI director of skills and inclusion, in a news release accompanying the survey. "But with firms only beginning to recover from the pandemic, and while they're prioritizing investing in more immediate pay and conditions to address labor shortages and rising living costs, any increase must take place over the next five years rather than in the short term."

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    December 12, 2022 page one

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