Average FTSE 100 employer DC contributions reach highest rate of 7.1%

Kim Keveh reports...

FTSE 100 employer contributions to defined contribution (DC) schemes have increased from an average of 6.4% in 2018 to 7.1% this year, according to Willis Towers Watson.

In its fourth annual FTSE 350 DC Pension Scheme Survey, the consultancy found this was the highest rate recorded so far. For FTSE 250 schemes, contributions saw a rise to 6.1% from 4.3% in the same period.

The study – conducted in May – found three quarters of FTSE 350 employers offered matching contributions in 2019, the same as in the previous two years.

At FTSE 100 companies which offered matching contributions, core pension contributions were 6.5% of annual salary, up from 5.6% in 2018. For the top-100 companies, average maximum total contributions amounted to 17.4%.

Meanwhile FTSE 250 companies increased their core pension contributions to 6% of annual salary, up from 4.1% in 2018. These firms’ maximum total contributions were also the highest seen at 14.8% for schemes of this kind.

Also among the FTSE 250, nearly two thirds (62%) had reviewed their DC contributions in the past two years, with a third considering a review in the next two years.

However, this number was slightly lower for FTSE 100 schemes, with nearly half (48%) having reviewed their structure, and a third looking to review contributions in the next two years. Of all FTSE 350 schemes analysed, over a third (35%) said they plan to review contribution rates.

Meanwhile 57% said they plan to review their default investment strategy, nearly half (48%) plan to review their at-retirement options, and 40% said they plan to review their delivery vehicle.

Willis Towers Watson senior director Richard Sweetman said: “It’s encouraging that these employers have sought to reassess and take action on their contribution levels and the scheme’s offering as a whole, likely given impetus by the final step-up of minimum auto-enrolment (AE) contribution rates in April 2019.”

AE contributions increased in April to a total minimum of 8% with 3% minimum employer contributions, from a total of 5% in 2018 with 2% minimum employer contributions.

Master trusts

The same research showed that master trust adoption has increased among FTSE 100 companies compared to last year, from 15% to 21%. The number of FTSE 250 companies using master trusts remained the same as 2018, at around a fifth.

For all companies analysed, those with master trusts were most likely to take action on increasing contribution rates, with 67% updating their scheme in the past two years.

Sweetman added: “Those companies who are making the move to master trusts are, perhaps unsurprisingly, the most engaged in making their pensions as efficient and effective as possible, and are taking the opportunity to review contribution design.”

The move to master trusts comes amid the rollout of an authorisation regime, with all master trusts seeking to remain in the market required to meet standards set by The Pensions Regulator. Just under 40 master trusts have applied, with 11 so far approved.