Despite a slight increase in recent years, average contribution levels in the majority of defined contribution(DC)pension plans in the United Kingdom are too low to support employees in retirement, according to survey.

Mercer’s 2006 Work & Savings Survey finds that overall contribution rates are up slightly to a current average of 10.4% of salary from 9.5%. Employers are contributing an average of 6.8% while employees contribute an average of 3.6%.

“Total contributions, while slightly up, still fall short of supporting decent pensions for the majority of people,” says Tony Pugh, the U.K. head of defined contribution pension services at Mercer. “At the current rate, most employees will get more pension through state benefits than their occupational plan, which may come as a surprise to many.”

The survey also finds that 90% of members end up in the default fund—exacerbated, in the case of contract-based plans, by the confusion caused by a choice of more than 50 funds being offered.

Members, says Pugh, are blinded by the plethora of investment choices available and both providers and plan sponsors need to recognize that the level of knowledge in this area varies widely between members and, as a result, so does the inclination to become involved in investment decisions.

Offering a simple core plan to the majority of employees and allowing those looking for more choice to opt for another arrangement can be a powerful aide in helping to remove confusion caused by the wide array of choices, he adds.

Pugh also says making sure that the design of the default fund option is “right” for as many members as possible is essential. “With members picking up one-third of the cost of their pension, and carrying 100% of the risk, employers and trustees must keep an eye on fund selection and proactively make changes when investments fail to deliver.”

The survey was conducted across 18 main industry sectors and covered 600 DC plans with combined assets of more than $14.2 billion.

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