A new survey of defined contribution schemes has found that one in five UK schemes have seen more members reducing their pension contribution as high inflation has cut people’s spending power. 

 

The first edition of a new bi-monthly survey, DC Today, was published on Wednesday by consultancy Aon. It tracks how DC schemes and members react to economic pressures. The first survey covered 132 schemes. 

 

The results show that in the last three months, a fifth of DC schemes reported an increase in requests to reduce contributions or to opt out of pension saving altogether. 

  

Aon associate partner Steven Leigh said the findings were concerning, if not surprising. 

“While this action may help individuals alleviate short-term pressures, it risks leading to a significant reduction in their retirement income,” he warned. 

 

Even opting out of pension saving for just three years - until someone is automatically re-enrolled - could lead to a significant reduction in retirement income, he observed, and savers would have to pay increased contributions each year until retirement to make up the shortfall. 

 

“It’s vital that the implications of opting out of workplace pension saving are fully communicated and understood before people take this step,” he said. 

 

Not all trustees are averse to members reducing contributions. The survey found that 26% of DC schemes either have or are considering allowing additional flexibility for members around contributions.  

 

“This could be very welcome if people are struggling financially and can ultimately serve to reduce the impact on members’ retirement income. However, it is essential that very simple or automated processes are put in place to get contributions back up to appropriate levels following any period of reduced inputs,” said Leigh. 

  

The survey also showed that one in six DC schemes saw an increase in requests for early access to pensions. “It’s not just the savings part of the ‘pensions journey’ where cost of living challenges may have an impact. There is a real risk that drawing on pension savings early could result in many employees not being able to afford to retire at the time they had originally planned,” Leigh said. 

 

Perhaps just as interesting for trustees is that DC members appear concerned about investment performance, with 43% of schemes reporting a rise in member requests for information or expressions of concern, as markets have been volatile in recent months. 

  

A significant proportion of schemes are looking for ways to respond to economic challenges and to support members through them. Almost half of them (47%) have communicated with members about the challenges, and more are saying they are thinking about doing so. 

 

"It is important that in times of uncertainty, members can be confident that trustees and sponsors are monitoring the situation, taking action where necessary and communicating the support options available to members,” noted Leigh. 

  

The survey also revealed that a fifth of schemes have provided additional retirement support, such as access to a preferred independent financial adviser, enhanced member communications or signposting to a drawdown provider for flexible retirement income, with another 23% also considering offering this. 

 

One in 10 schemes are changing the investments, and a further 30% are also mulling it. Meanwhile, about a third (32%) of schemes have considered the impact of recent market volatility or higher inflation on member outcomes.  

 

Have you seen your members cut back on pension contributions? How do you communicate about it?