Should you pay higher DC contributions to spur retirement?

But how can trustees maximise the ability of workers to retire in an increasingly mobile workforce, with a wider array of ways to access money?

According to Jonathan Reynolds, a client director at Capital Cranfield Trustees, low contributions could mean employees will not be able to afford to retire, leading to an older workforce and the inability to hire new people.

He said: “The demise of [defined benefit] and this very problem… will actually result in ageing workforces.”

Reynolds added that those still in work but earning around £25,000 and with a state pension could regard their DC pots as having little potential.

“So you could find that for a period of years after state pension age a lot of people with inadequate DC pots [are] very unwilling to retire,” he said.

Mobile workforce

However, Paul Armitage, principal consultant at Xafinity, said there was no direct link for the employer because if the average employee has five to seven employers across their working lifespan, the affordability of retirement for the individual is only partially linked to what their last employer was paying into the scheme.

He added: “It depends on what proportion of their working life that individual spends with you. So yes it’s an issue but no employer has sole responsibility for it.”

Reynolds said the only way forward is higher contributions, up to the 20 per cent salary mark, otherwise it would be a struggle to get meaningful provision.

He added that trustees need to engender confidence and trust in their members. “People simply aren’t going to put 20 per cent of salary – both employer and member – they’re just not going to do it, so there’s a long way to go to rebuild that confidence and make people think, ‘Actually this pension is a good idea’.”

Roger Mattingly, managing director of Pan Trustees, agreed: “There’s no doubt that one of the contributors to decent retirement finance – whatever that means – is the level of contributions.”

Engagement, education and seeing a life coach can help, according to Armitage, who added that people should view retirement as a significant life event: “Unless you regard retirement as a goal, then why would you save specifically for it?”

Phil Percival, senior DC consultant at Willis Towers Watson, said it was a two-pronged approach, because even though an employer may offer generous contribution rates, there is no guarantee the individual could retire due to how they saved earlier in their career.

“So that combination of decent levels of contribution plus tools or education support to help people understand at a personal level when they can afford to retire is absolutely critical,” he said.

Increasing costs

A survey by Willis Towers Watson 18 months ago found that the higher the average age of the workforce, the more costs like group life insurance premiums increase.

Another survey on global benefits attitudes looked into the link between employee performance and the age at which they expected to be able to to retire, with those retiring later less likely to be in good health, more likely to be suffering from work stress and less likely to be engaged with the business.

However, Mattingly said it is a myth that an older workforce equates to fewer jobs for the younger generation.

He said: “The ‘lump of labour fallacy’ says there isn’t a correlation between the older population carrying on working and the capacity of younger people to get jobs. It is counterintuitive; I just accept it because experts tell me it’s absolutely true.