DC payments steady during Covid, but statutory rise may be needed

Ninety-two per cent of businesses were able to maintain contributions to DC schemes, even after Covid-19 negatively impacted their cash flows. However, a majority of senior executives believe that contribution rates will have to increase to facilitate a sufficient pension pot at retirement.

The survey of 186 senior executives, and 164 individuals responsible for the pension scheme in their business, across 221 companies found that 86 per cent of employers see a strong business case for providing competitive workplace pensions, with the same proportion believing that they have a moral obligation to help staff to save for retirement.

Matthew Percival, director of skills and inclusion at the CBI, said: “The vast majority of firms providing both DC and defined benefit schemes maintained the amount that they pay in because they value the importance of competitive workplace pensions, despite the disruption caused by Covid-19.

“Businesses know that they have a vital role to play in offering advice to employees about saving for retirement. It’s also crucial that the government educates people about the importance of having a pension.”

And while three-quarters of senior executives said that contribution rates higher than the current 8 per cent statutory minimum will be required in future, Percival said that any changes must be introduced over the long term.

“Employers are eager to build on the standout success of auto-enrolment and know that higher business contributions will be needed in future,” he said.

“But with firms only beginning to recover from the pandemic, and while they’re prioritising investing in more immediate pay and conditions to address labour shortages and rising living costs, any increase must take place over the next five years rather than in the short term.”

The survey also found that more than seven in 10 employers believe that business must do more to engage staff with pension savings. Eighty-seven per cent of respondents also said that the government should prioritise educating people about the importance of pensions over the next two years.

Tess Page, partner and trustee leader at Mercer, said it is “reassuring” to see support for pensions remains undimmed.

“However, many DC schemes are still a long way off providing good retirement outcomes, and without firm action to improve contribution and engagement levels the intergenerational pension gap risks widening further.

“Now more than ever those responsible for pension schemes must work together to ensure the right outcomes for all their stakeholders,” she added.

The survey also found that trustees’ understanding of the Task Force on Climate-related Financial Disclosures framework is low, with only 8 per cent confident in its requirements.

From October 1 2021, pension schemes with an asset value of £5bn or more must report the risks and opportunities that climate change poses to their investments in line with the TCFD framework. 

Almost half of businesses with a DC scheme (47 per cent) said that disclosures will be a useful way to engage employees with their future savings.

Percival said: “Climate change exposes pension schemes to financial risk as well as opportunity, so the requirement for firms to step up their reporting on this is welcome. It could also help more employers to increase staff engagement with their pensions.

“Introducing standardised disclosures where there may be financial risks stemming from climate change is also hugely useful. But uneven reporting standards and a lack of readily available climate data across the investment chain remain sources of frustration,” he added.