Automatic features to become the norm for
plans worldwide
6 October 2009
A third of employers worldwide already offer
at least one of the automatic features of enrolment, rebalancing or escalation,
according to a survey of ‘automatic features acceptance’ by
Mercer.
The financial consultant surveyed organisations that sponsor defined contribution
(DC) retirement plans across 33 countries, and found that a third offer
auto-enrolment, due to hit the UK from 2012; a third offer automatic contribution
escalation; and over a fifth offer automatic rebalancing features. Of
the 80 per cent of companies that have a default investment option, lifecycle
funds are the most common default instrument, used by 67 per cent.
Europe and the UK were found to be lacking in the implementation of auto-enrolment,
although Mercer said it expects auto-pilot feature to become mainstream
in most countries over time.
“Automatic plan features have become prevalent in some countries
and are spreading quickly to other countries to combat employee inertia
and to fulfil plan sponsors’ desires to further increase participation
rates,” commented Barbara Marder, a worldwide partner and head of
Mercer’s global DC consulting and the retirement international consulting
businesses.
The survey also showed that DC plan sponsors have moved away from paternalism,
with 55 per cent instead seeing their role as that of a facilitator for
employees to save for retirement.
For the future, Mercer said the majority of respondents have already closed
their DB plans to new employees and are instead providing market-competitive
DC plans, along with financial education to help them make adequate provision
for themselves.
“However, we don’t believe that all employees are ready to
be ‘on their own’. For years, employees have looked to their
employers and to the government to provide financial security in retirement,
and few are equipped to take on the responsibility. Some governments around
the world have, or are planning to, reduce social security benefits and
extend retirement ages. If two of the three legs of the three-legged retirement
stool are simultaneously shortened (government- and employer-based support),
the third leg (employee savings) is bound to be unsteady,” added
Marder.
The survey was conducted in June 2009 amongst more than 1,500 participants,
including over 300 multinational companies.
