Britain’s defined contribution (DC) pension assets fell last month after three consecutive months of gains, according to analysis by Aon Consulting.
With workers unable to rely solely on employers’ pensions payments, this month’s drop in projected retirement income highlights that individuals need to maintain adequate personal contributions to stakeholder schemes, the firm said. At the same time, employers need to review the suitability of their default funds, which the vast majority of people choose to pay into.
According to Aon’s DC pension tracker, which measures the total asset value of UK workers’ DC pension accounts, their assets have fallen by 2.3 per cent over the last month to a combined total of £420 billion. Falls in global equity markets over the last month have been responsible for the losses.
The DC Pension Tracker also measures the income in retirement of individuals at different ages who contribute ten per cent of their £25,000 salary to their retirement savings and have an existing fund (valued as at September 2007) of £15,000 for age 30 and £150,000 for ages 55 and above.
This month’s figures are a gloomy reminder for DC pension scheme members of how much their pension income can be affected by turbulent equity markets. Four fifths of open private sector pension schemes are DC based.
Richard Strachan, senior consultant at Aon Consulting, said: “This month’s tracker demonstrates that companies and scheme members alike cannot rely on market rallies to recoup recent losses. The previous three months of growth have been tempered by June’s falls in pension investments.
“With employers under severe budget pressures, we would urge scheme members to ensure that their contribution levels are adequate to provide them with the income they need in retirement. It’s clear that in the present climate businesses are unable to increase pension payments, so it is all the more important that individuals understand their need to contribute enough themselves every month. An expectation that the employer alone will provide for a cosy retirement is unfortunately founded on misplaced optimism rather than realism. Keeping on top of investment choices is also key during turbulent times.”