Mercer’s defined contribution plan specialists ensure clients’ plans are founded on sound governance and help attract, motivate and retain the best talent.
THE CHALLENGES OF DEFINED CONTRIBUTION PLANS
Defined Contribution plans are becoming the retirement vehicle of choice in many countries. The drivers for this include employers’ concerns around the cost and risk of Defined Benefit plans as a result of financial market volatility and greater accounting transparency, coupled with changing demographics and a more mobile workforce.
However, as defined contribution plan assets grow apace and these plans prove to be the future of pension provision, particularly as the State steps back, forward-thinking companies are starting to recognize the impact defined contribution plans can have on their business. Inadequate defined contribution plans and poor governance leave businesses exposed to significant financial, operational and reputational risks. The legislative environment in which defined contribution plans operate is becoming more stringent and financial regulators have the power to, and have, imposed multi-million dollar fines where employers fail to comply.
Increasingly, the onus is on the employer to play a greater role in supporting their employees to make decisions to generate a sustainable income in their retirement. This will require comprehensive and targeted communications to educate and engage their workforce to plan for the long-term, at a time when there are competing short-term demands for their money. If employers take a back-seat, then this will create workforce management challenges down the line as older employees will be unable to retire and so will undermine the defined contribution plan as an effective recruitment and retention tool.
Pensions may be the last thing on a young person's mind, but it is never too soon to ask whether you are saving enough.
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