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Employees place too much reliance on company pension scheme without knowing full financial details

Although a majority of employees are reliant on their company pension as their main source of retirement income, many do not know how much their employer actually contributes to the scheme.

Some 42% of respondents, surveyed for Scottish Widows’ Workplace Pensions Report, admitted they did not know the extent of their employer’s contribution to their defined contribution (DC) scheme.

Working with a sample of more than 5,000 adults, the Scottish Widows Workplace Pensions Report 2010 found that among those who expect to receive an income from a private pension in retirement 43% were still in final-salary schemes, with 33% relying on these defined benefit (DB) schemes to provide them with more retirement income than any other private pension.

The report also shows the ongoing shift from defined benefit to defined contribution. Among those who expect to receive an income from a private pension in retirement nearly half of the respondents over 50 were in final-salary schemes, compared with less than one third (29%) of those under the age of 30.

Ann Flynn, head of marketing communications, corporate pensions, Scottish Widows, said: "Despite the death of the final-salary pension due to its lack of affordability or sustainability, it is clear that many people are still incredibly reliant on their employers and still believe that their defined-benefit scheme will provide them with enough money to support them throughout their retirement. This is a worrying thought, and we would therefore encourage everyone to investigate if their existing savings are adequately covering their needs."

 The report underlines the importance of pension provision as an employee engagement tool, with over two-fifths of workers saying that the quality of the company pension scheme is an important factor when thinking about changing employer This was further supported by 63% of employees stating that they would be less likely to look for a new job should their employer increase their pensions contributions.

Additionally, the report clearly underlines the need for employers to offer advice and guidance to help employees better understand their pension scheme and its benefits, as well as their wider saving needs. Two fifths (40%) felt employers should offer full financial advice if they provide access to a pension, with a further 55% stating that they thought their employers should at least offer some kind of general information. In 2009, the corresponding ratios were 33% for full financial advice and 43% for general information about retirement planning, representing a cumulative increase of 25% in terms of this need.

Flynn added: "As the face of UK workplace pension provision continues to change, it is important for employers to engage with their employees to help their understanding of the benefits available to them as the individual has to take responsibility and make the correct decisions about their short, medium and long-term financial planning needs."