Contribution rates to UK DC plans uncowed by pandemic – survey – Pensions & Investments

Contribution rates for U.K. defined contribution plans remained stable during the COVID-19 pandemic despite concerns over plan sponsors’ financial stability, according to an annual survey of FTSE 350 companies by Willis Towers Watson.

U.K. DC plans that offer a match continued to provide more than 17% of a combined employee and employer rate in 2021, while non-matching plans’ contributions rates were under 11%, in line with 2019 and 2020 levels, the FTSE 350 DC Pension Survey 2021 showed.

“There was concern this year we might see a reduction in benefits and commitment as organizations grappled with maintaining financial stability and workforce planning, Gemma Burrows, director in Willis Towers Watson’s retirement business said in a news release accompanying the survey. “Far from this, what we see in this year’s results is a compelling desire for organizations to improve member outcomes and enhance the support that is provided to them.”

The survey also found that some 16% of plans intend to increase the contribution rate in the short-term, while none expect contributions to be reduced, WTW noted. The number of employers offering a plan design allowing particpants to redirect some savings to alternative savings vehicles could also triple — to 31% — over the next two years, according to the survey.

The WTW survey, however, also showed that 83% of FTSE 100 companies and 85% of FTSE 250 companies enroll plan participants at minimum combined contribution rate of 8%.

WTW also said that 61% of employers with single employer plans indicated they want to move to multiemployer plans, known in the U.K. as master trusts, within the next two years.

A further 12% of employers that already use master trusts are considering reviewing their provider in the next two years, the survey found.

“For many employers that moved to a master trust five plus years ago, the options available in the industry have changed dramatically. Some of those employers are now starting to look around and consider whether there are more suitable alternative providers that could offer better value or service to members,” Ms. Burrows added in the release.

Also, the rate of ESG adoption in default funds of DC plans has almost doubled in the past year, with 30% of plans reporting that their default investment option is now ESG focused up from 17% in 2020. This shift is driven by consistency with corporate policy, regulatory requirements and desire to engage plan participants, WTW said.

The survey covers 229 of the FTSE 350 companies.