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Employer levels of commitment to defined-contribution pensions have risen

Employers' contributions to defined-contribution (DC) pensions have increased by 1.5% since 2007, despite the economic downturn.

According to research out today from Mercer, average employer DC contributions have risen from 6.8% to 7.25% and employee contributions have increased from 3.6% to 4.65%.

More than nine out of 10 respondents (92%) do not plan to reduce pension contributions, 4% will be cutting back on their pension provision, 2% have suspended contributions temporarily and 1% have decreased contributions temporarily.

Almost half of the employers surveyed (49%) cited controlling overall cost as their highest priority when establishing a DC plan - above ‘encouraging employee responsibility' and ‘providing staff with adequate retirement benefits'.

Tony Pugh, UK head of defined-contribution pension services at Mercer, said: "It is encouraging to see this increased level of commitment to DC pension provision. It reflects a maturing attitude to DC pensions as it becomes the most prevalent form of provision in the UK."

 "As sponsors leave behind defined-benefit in favour of DC for new hires and, increasingly for existing employees, the need for a scheme to be successful is high on the corporate agenda. In fact, 78% of participants stated that an arrangement ‘valued by employees' was their top success factor and this, in part, could be accomplished by higher contributions. However, there remains much work to be done in this area as only 16% of participants believed they had been successful in achieving appreciation."

Half of the respondents think Personal Accounts and auto-enrolment legislation in 2012 will lead to increased costs and 45% will be introducing auto-enrolment within the next two years. But 23% have not yet considered the impact of the new pension rules.