According to a report published today by HR consultancy Aon Hewitt, the majority of employers (63%) offer over 20 investment options to defined contribution scheme members, while just over one in 10 employers (12%) offers no default investment option.
Aon Hewitt warns that this array of investment choice may affect employees' ability to engage with their pensions, because too wide a range of options - without necessary guidance - may cause confusion.
With 12% of companies not offering a default option, members may be wary of making decisions that they do not fully understand, or that may not suit their personal circumstances.
Despite this, Aon Hewitt's research also found employers continue to introduce fresh investment options. In the past year, among schemes which introduced new funds, a third of them introduced a socially responsible/ethical option and a quarter introduced Sharia-compliant funds.
John Foster, defined contribution consultant at Aon Hewitt, said: "While at a surface level, introducing greater choice is seen as a positive step by employers, this doesn't necessarily encourage scheme members to understand and fully value their pension. Being faced with so many investment options can be confusing and overwhelming - to the extent that some members will end up making no choice, or perhaps worse, make a random choice.
"Furthermore, for those confused by the choices of investment, some employers still do not offer the option of a default fund, though this will become compulsory if the plan is to be used for auto-enrolment.
"Employers should make every effort to engage their employees and members with their pensions and aim to provide the information needed by scheme members to make informed choices suited to their age, expectations and attitudes to risk. At a time when everyone's finances are under pressure, employees need to ensure they understand the decisions they are making in order to maximise their retirement income.
"By encouraging scheme members to be engaged with their pension activity and by proactively managing the range of funds offered, employers and trustees can help their employees and members understand that they really can influence their financial future - not least because, with the impending removal of a default retirement age, long-term savings are as beneficial to employers as they are for employees.
"We as a society cannot afford - quite literally - for companies not to maximise their workers' chances of understanding and getting the most from their pension. By increasing engagement of employees, organisations will also benefit from a better motivated workforce that can afford to retire when the time comes."
The findings come from Aon Hewitt's Employee Benefits and Trends Report, which polled 485 employers on various issues relating to employee benefits and pensions in the fourth quarter of 2010.
