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Workers contribute too little to company pensions

Workers are not paying enough money into many new company pension schemes, advisory firm Mercer has warned. According to a new report by Mercer, which looked at 400 employers, operating 600 "defined contribution" schemes, contribution rates have risen by only 0.9 per cent in the last five years - in 2002 employers and staff paid in an average 9.5 per cent of salaries, and now pay in just 10.4 per cent.Mercer found that current contribution levels will give staff a pension of around 20 to 30 per cent of their pay after 30 years, rather than the 50 per cent that many employees expect. An average contribution rate of 15 per cent of salary over the course of a 40-year career has long been seen as the amount needed to ensure a sufficient pension fund at retirement, but in reality the figure is higher now, because costs of living are higher and people are living longer."If people want a good level of pension they must be looking at a minimum of 15 per cent (overall), while somewhere nearer 20 per cent would be more sensible," said Tony Pugh, Mercer's UK head of defined-contribution pension services.Mr Pugh added: "At the current rate, most employees will get more pension through state benefits than their occupational plan, which may come as a surprise to many." He suggested that companies should be more innovative in trying to encourage workers to put money into defined-contribution schemes, and should consider methods such as automatic scheme entry, which requires members to contribute or encourage workers to divert part of their future pay rises into their pensions.

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