What are the chances of you having enough to retire on from your DC scheme?

And so, after much grinding of teeth, England have qualified for the FIFA 2014 World Cup. Once the immediate “Lets not get too excited” pleading from Roy Hodgson is forgotten, sit back and let the traditional English football over-optimism commence. Nine months of the Press writing “Just Maybe…” stories will surely follow.

The onset of Autumn should see us snap back to reality and realise that we have some fairly fundamental obstacles sitting between the England team and World Cup Triumph. Anyone who has watched the more technically gifted sides (Spain, Argentina, Brazil) stroking the ball around in a totally relaxed manner, will recognise the look of fear in the average English defenders’ eyes when they have the ball at their feet. With notable exceptions, and not wanting to sound like a bitter ex-player turned pundit (I confess – I’m completely devoid of footballing talent), our current crop of internationals lack the polished basic skills of their international counterparts.

Maybe, just maybe, the lack (albeit relative) of basic skills will be irrelevant. The “English Way” of playing the game will see us through. Effort will triumph over technique. However, the odds aren’t great. We are currently about 25 to 1.

So what are the chances of someone paying into a Defined Contribution scheme having enough to retire on at say the current State Pension Age of 65?

Obviously what you get out should be more or less a direction function of what you put in. The higher your contribution rate, the better your odds?

According to a report published by the Office of Fair Trading in September (“Defined Contribution Workplace Market Study” – OFT 1505) that is not exactly the case. Just at the point when millions of people are contributing to DC schemes for the first time as they are auto-enrolled, the OFT have issued a fairly blunt assessment that DC provision isn’t working. Governance and competition is found to be lacking.

Products are confusing. Costs are far from clear. There is a fundamental failure in the market driven by the fact that Employers are making provider selections (often based on cost grounds and often without advice) whereas it is not Employers but Members (and often these are e-employees) who suffer the consequences of those selections.

Whilst the main driver of what you get out of a DC scheme is what you put in – it is not the only driver. If we can improve the options available to members, the transparency around cost and the way in which savings are converted into income at retirement, we may be able to encourage members to save more into their DC pension pots.

The OFT suggest that, much like the state of English football, a back to basics approach is required. They suggest that Governance committees should be established with clear objectives and the power to ultimately move away from under-performing providers. Cost clarity should be achieved by the use of a single performance measure. And wide-ranging performance statistics (including relating to administration quality) should be required to be published. Until these basic principles are in place, the prospects of prosperous retirements will remain unclear….driven more by luck than judgement.

Until English players master the basics in the same way as their international counterparts, England’s prospects will also depend on luck. Whilst I’d be prepared to let luck determine the outcome of the World Cup, should we really have to take such chances with our pensions?

Adrian Kennett
Adrian Kennett

Adrian is a Director of Dalriada Trustees and is responsible for leading the ongoing Trusteeship practice. He has detailed experience with a wide range of pensions issues, including administrative, legal and communication issues, particularly in relation to closed schemes and those preparing for wind-up.