In the midst of the cost-of-living crisis, one of the last things many people are thinking about is putting money away for their later years, especially when every penny counts.

However, with defined benefit pension schemes taking more of a back seat in the workplace, all eyes are on defined contribution pension schemes which may not be all that they seem.

Out with the old

With the introduction of workplace auto-enrolment schemes in 2012, the once more common defined benefit pension schemes began to fade and nowadays, are pretty much non-existent in most workplaces.

Defined benefit pension schemes (DB) are a pension scheme where the amount you’re paid is based on how many years you’ve been a member of the employer’s scheme and the salary you’ve earned when you leave or retire. 

They pay out a secure income for life which increases each year in line with inflation – via Money Helper

In its place, defined contribution pension schemes are becoming the norm, and are now 55% more common than DB schemes, and according to the Pension Regulator, have 15 times more active savers than those with DBs.

Defined contribution benefit schemes (DC) are an occupational pension scheme where your own contributions and your employer’s contributions are both invested and the proceeds are used to buy a pension and/or other benefits at retirement – via Pensions Authority IE

But, the reality is that for most people, DCs won’t accumulate enough savings to fund their retirement; something which is important for savers to know. 

In fact, despite the number of DC savers remaining high, the average assets per saver is low.

This isn’t a new revelation though, and discussions about what more needs to be done has been in circulation for several years.

DC specialists argue that employer contributions remain too low at just 3%, and more help is needed for younger and part-time workers. And as such, are calling for employer contributions to be increased.

As expected, this notion hasn’t been met with favourable responses, particularly as DC schemes are meant to be less reliant on the employer who is not responsible for managing investments on behalf of their employees (unlike with DBs). 

However, aside from the questionable contributions into DC pensions from employers, attention also has to be drawn to what is being done with your money.

DCs invest both your own and your employer’s contributions with the earnings then being used to purchase a pension. They can be a great way to get more pension money into UK equity and infrastructure, however, work is needed to unlock more beneficial and worthwhile investments that will make the most of DC savers’ money for retirement.

So, why is this important to talk about?

Talking about your pension, and finding out about the ins and outs of it can be essential in making the most of your money. 

It can also open up conversations and highlight aspects that need to be worked on by those in power-making positions. For example, increasing employer contributions into defined contribution pension schemes.

The more you know about your money and pensions, the better. Especially when it comes to planning for your later years and knowing how to fund your retirement.

It’s also easy to find saving daunting in this day and age, but it doesn’t need to be! And the earlier you contribute to your pension pot, the more prepared you will be.

To discuss your pension options, and for answers to any pension queries you may have, contact our experienced team of advisers today.

Coffey Brooks are a team of Independent Financial and Mortgage Advisers based in Clacton-On-Sea, Essex and are directly authorised and regulated by the Financial Conduct Authority.

Disclaimer – This article has been written for educational purposes, and to the best of our knowledge, all content is accurate as of the date posted.  If you have any concerns or queries about your finances, always contact a financial adviser directly.