Employer Contributions to DC Schemes - typical levels?

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Querylogger1

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Hi,

We will be moving from a DB pension scheme to a DC pension scheme. I am interested in assessing the quality of the new scheme offered by our company, from an employer contribution point of view, but am finding it very difficult to find a source for this information.

i would like to get a view of typical employer contribution levels. I did see on one source that the average Employer contribution level is 8%, but it is unclear if this is at certain age levels, or dependent on the amount an employee contributes.

Our scheme requires a basic level of contribution from employees, starting at 3%, with the company also paying this amount, plus an additional 1% up to age 50, and 2% over age 50. there is the option to increase our contribution by another couple of %, which the company would then match, but obviously, in order to avail of any of these benefits, we will be reducing our take home pack v's the old scheme, as it requires additional contribution from employees in order to trigger the employer contributions.

is anyone able to advise of where we can get an overview of the various schemes out there? or how does this compare?

Thanks
 
In 1998, AIB introduced a DC scheme which had an employer's contribution rate of 8% and no matching beyond that. When the hybrid scheme was removed and the DB scheme abandoned - around 2012 I think - the scheme changed to be 10% plus 2% matched (up to age of 40), 5% matched (up to age of 50) and 8% above that.

I know of an American company operating here makes a contribution of 3%, with no matching regardless of employee contribution. I'm guessing that is the other end of the scale.

The rule of thumb back in the day was your total contribution rate should be half your age (at the time contributions start) as a percentage of your salary.
 
...I meant to start by saying I don't think there's a 'typical' contribution rate and things get mixed up between fixed commitments from employers, their matching options and then those that meet the legal minimum (requiring a scheme to exist, with no contribution on their part).
 
Quite a few people I know in the private sector are in DC schemes which are 4% employee / 6% employer contributions.
 
Hi Huskerdu - not directly related to your query but do you know what is happening to the DB benefits you have already built up? We have seen situations where these benefits convert into a transfer value which is then transferred to a Buy Out Bond (BOB) or Personal Retirement Bond (PRB) in your name. If this is the case make sure you have a good look at the terms you are being offered on this transfer to a BOB/PRB. This can be very important if you have a long service history and a reasonably large transfer value. We have seen wind ups where we could have provided the members with an extra 2% uplift in value of the transfer to the BOB/PRB for the exact same product. If the Trustees are recommending this then our advice is always to take the Trustees recommendation and then shop around for better value. That extra 2% is better off in your pension. Moving from DB to DC is a huge change in your retirement plans , though unfortunately it will become ever more common. Ask plenty of questions of the Trustees and administrators and try your best to get the best deal you can, albeit in difficult circumstances.
All the best Vincent
 
Thanks rob oyle and huskerdu. Yes, I am finding it hard to get a view of what the "norm" is on employer offerings, as there are complicating factors such as age, and matched contributions, v's non matched, and additional levels of contribution etc etc. It's so hard to know as an employee, if the schemes our employers are offering us are any good v's other companies.

North Star, thanks for your advice. The DB scheme is just being frozen, so next month is our last month to contribute to that scheme, then after that, we will be on the DC scheme. The benefit from the DB scheme will be available to receive as a pension at age 65.
 
Hi

Can anyone help with a related question to this. Do the maximum % earnings limit for tax relief include the company contribution in a DC scheme ?

So, my company pay a 7% standard contribution into a DC and pay another matching 3% contribution to my own 3% ? So, the total contribution is now at 13%.

I'm in the 30-39 age bracket so the limit is 20% of relevant earnings. So, to now make additional AVCs, what is the relevant limit for me ?

Is it a) 20% -13% = 7% max AVC b) 20%-3% = 17% max AVC or c) 20% max AVC

Thanks
 
MajorTom said:
Hi

Can anyone help with a related question to this. Do the maximum % earnings limit for tax relief include the company contribution in a DC scheme ?
Click to expand...
In short (because I'm on my phone!), the answer is no. The Revenue limits relate to the maximum relief you can get from your contributions.
 
MajorTom said:
Hi

Can anyone help with a related question to this. Do the maximum % earnings limit for tax relief include the company contribution in a DC scheme ?

So, my company pay a 7% standard contribution into a DC and pay another matching 3% contribution to my own 3% ? So, the total contribution is now at 13%.

I'm in the 30-39 age bracket so the limit is 20% of relevant earnings. So, to now make additional AVCs, what is the relevant limit for me ?

Is it a) 20% -13% = 7% max AVC b) 20%-3% = 17% max AVC or c) 20% max AVC

Thanks
Click to expand...
20% limit is on employee contributions only. I'm in same age bracket and contribute 20% myself (5% basic plus 15% AVC). Simultaneously, employer's contribution is 5%, so 25% overall. Hope that helps.
 
in the case of my own employer ( an American multi)
  • if I pay 3% they pay 3 to 5%% depending on my T&C's and roles
  • if I pay 4%, they pay 6%
  • If I pay 5%, they pay 7%
  • If I pay 6%, they pay 8%

I have the options of changing what I pay once a year and if I move to a lower % and the company pays a corresponding lower amount, their "saving " is instead added to my basic salary.
 
OP, mine is 5% employee, 5% employer. I've previously worked in 3% employee, 6% employer. So it varies.
 
5% employee minimum ( you can add AVCs)
10% employer fixed.

which is pretty decent I think, but I'm also thinking I should apply to AIB :)
 
Mine is 5% employee, 8% employer. I add the maximum 15% AVC. The 20% (i.e. 5% + 15%) is obviously capped at 20% of €115k, whereas the 8% isn't.
 
http://www.irishlifecorporatebusine...ined-contribution-retirement-readiness-report

Page 5

Average Employer
Contribution Rate (of salary) 5.7%

Average Employee
Contribution Rate 3.4%

Average Additional
Voluntary Contribution
(AVC) Rate 1.2%

Total Contribution 10.3%


My pension scheme at work in the past: 2% employee 2 % employer
Now:
2% employee - 4% Employer
3% employee - 7% Employer
4% employee - 10% Employer
6% employee - 12% Employer


Check Glassdoor.com - perhaps you can find some comparison data there from other companies in the same industry
 
My company is also moving from DB to DC shortly. They havent announced exactly what the new scheme is yet but I would be interested in hearing what would be typical (and also what tends to happen with your built up service in the DB scheme).
 
Gordon Gekko said:
The 20% (i.e. 5% + 15%) is obviously capped at 20% of €115k, whereas the 8% isn't.
Click to expand...

I wonder will that be changed in the future. It seems very unfair to professions like dentists that cannot incorporate their businesses.
 
Sarenco said:
I wonder will that be changed in the future. It seems very unfair to professions like dentists that cannot incorporate their businesses.
Click to expand...

Hopefully not!

Some dentists do incorporate (with some planning), primarily for pension funding purposes.

In a world where we need more retirement planning rather than less, it would seem perverse to restrict employer pension contributions. But I wouldn't be surprised if there is a change for the worse.
 
Gordon Gekko said:
Some dentists do incorporate (with some planning), primarily for pension funding purposes.
Click to expand...

Interesting. I thought there was a statutory prohibition on practicing dentistry through a corporate.

It still seems strange that there are annual limits on what a self-employed person or an employee can contribute to a pension fund but there is no limit at all on what an employer can contribute on behalf of an employee. It doesn't seem very fair or logical.
 
Just a quick point for Querylogger1 and Kier to add to the mix re the previously earned DB benefits. These benefits can either stay within the scheme or in some cases are converted into a transfer value and moved into a Buy out Bond for each member. If the benefits are moving as I mentioned in a previous post, shop around to compare the terms and see if you can get better value on your Buy out Bond.
If they are staying within the scheme, then there are other issues you need to consider. In general this refers to the current and future solvency of the scheme. There have been cases where DB benefits have been materially reduced for both active and deferred members under a Section 50 order. So what you thought of as 'secure' pension benefits can de reduced in the future. So we always advise anybody with active or deferred DB benefits to do their best to track the solvency of the scheme and ask the Trustees for an update each year ( to see if the trend is improving or dis-improving). Then you also have the risk that the employer may hit hard times in the future. Many DB schemes are struggling to deal with their solvency and are offerring enhanced transfer values to try to reduce their long term liabilities. Standard Life have a good piece on the various pros and cons of keeping your DB benefits or taking a transfer value [broken link removed]
This is a complex area and each individual situation is different and needs to be considered on its own merits. If you have DB benefits do try to track the scheme solvency and it is probably well be worthwhile getting some independent advice on the options open to you - on a fee basis to minimise any potential conflicts of interest. It could be money very well spent.
This probably isnt what you want to hear but I think everyone with DB benefits should be asking these questions. I think this issue is going to get a lot worse for DB schemes.
All the best Vincent
 
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