Employees are storing up the prospect of an impoverished retirement, according to a survey by benefits consultants Mercer. It also reports that, for people with dependants, the death-in-service benefits in defined contribution schemes "is generally inadequate".
A survey of defined contribution pension plans found that, on average, employees contribute just 4.1 per cent of their salary, with employers putting in an additional 5.9 per cent.
The figures indicate that middle and high earners especially are contributing less than half the sum necessary to provide "a reasonable level of replacement income after retirement", according to senior Mercer consultant Ken Mortimer, although he notes that the survey does not take account of additional voluntary contributions (AVCs) that people make to pension funds.
"Many people who are members of defined contribution pension plans - where the pension is determined by the level of contributions, investment performance and the cost of buying an annuity - are unaware of the level of income they are likely to receive after retirement," he said.
He urged employers to make information available to employees to enable them assess the level of AVCs required to boost their pension early to help them "avoid unpleasant shocks for employees at retirement".
On a positive note, the survey notes that 21 per cent of employers had raised their level of contributions over the past two years, with a further 17 per cent indicating they intended to do so in the coming two years.
Employers are also requiring their staff to increase their input.
The survey welcomed evidence that trustees have become more active, with 45 per cent changing their investment choices in the past two years and a similar number looking to do the same in the future.
On death-in-service benefit, Mr Mortimer said it was "not an area where employees should rest easy".
He noted that 77 per cent of schemes paid the same rate of benefit, regardless of whether the employee had dependants.
"Overall, we think the message on the need for improved pension performance is getting through, but only slowly," he said.
He noted that recent adverse publicity about the solvency of defined benefit pension schemes should alarm those with defined contribution schemes.
"Employers who sponsor defined benefit schemes have been forced to pay substantially increased contributions as a result of legislation regarding solvency," Mr Mortimer said.
"Defined contribution pension schemes have similar problems, but employers are not obliged by legislation to take any action."
There was a danger than many members of such schemes would only discover too late how poor an income they could look forward to in retirement.
