European DC Survey

2007/2008
Summary of highlights
About the survey
In November 2007, Mercer invited organisations in 13
European countries to take part in a survey on defined
contribution plan provision. The countries were Austria,
Belgium, Denmark, France, Germany, Ireland, Italy, Lux-
emburg, Netherlands, Portugal, Spain, Switzerland and
the United Kingdom (in an earlier stage).
The objective of the survey is to help employers gain
a better understanding of both the macro European
market and local practices and, where necessary, refine
their own plans and practices in order to address the
key challenges facing them in securing value from their
DC pension plans.
We received responses from 235 organisations across
18 industry sectors, covering over 41,000 participants.
The combined assets of the DC plans examined are ap-
proximately E520 million, with the average asset size of
individual plans approximately E23 million.
The number of employees in the organisations partici-
pating in our survey varies: 32 percent have less than
250 employees; 80 percent have less than 5,000 employ-
ees.
In anticipation of the forthcoming full report, this sum-
mary presents highlights of the key survey findings.
The data collected for the survey can be used to provide
in-depth analysis – for instance, by industry sector or by
size of plan (assets or active members).
For more information, please contact your local Mercer
consultant or refer to the “More details” section of this
summary.
Success factors rated by sponsors as a “top three” consideration for DC plans
Valued by employees
Adequate benefits
Cost predictability
Attracting employees
Supporting business and HR strategies
Retaining employees
High participation rates
Low running costs
Effort required by company/trustee
Employee flexibility
0%
Highlights
The survey revealed a range of key facts about current
market practice and identified a number of potential
areas of concern for plan sponsors.
1. DC provision
n Although most of the DC plans reported are relatively
new – they have been in existence for less than seven
years – 25 percent were introduced before 1996.
n A quarter of employers responding to the survey offer
(or plan to offer) a pension or trust-based vehicle
in addition to their DC plan to help create additional
wealth for employees. Another 16 percent offer (or
plan to offer) an insurance-based vehicle for addition
al wealth creation. And yet another 4 percent indi-
cated that they offer (or plan to offer) a pan-European
pension fund (PEPF). This is surprising, since very few
PEPFs are in operation at this time.
n In a quarter of the companies responding, all DC plan
costs are paid by participants via the annual man-
agement charge. In another quarter, most plan costs
are covered by participants, but the company funds
the costs for communications and investment advice.
But 40 percent of companies responding pay the full
cost of plan administration, while the participants
fund only the investment costs via the annual man-
agement charge.
53%
47%
46%
34%
34%
29%
28%
26%
23%
17%
10% 20% 30% 40% 50% 60%
2
2. Key success factors and challenges for plan sponsors

n When asked what respondents considered to be the ing approach”, where the employer’s contribution
key measures of DC plan success, over half (53 per- depends on the employee’s contribution level, with
cent) said how their employees valued the plan was the remaining 30 percent basing contributions on an
their chief concern. Other success measures are employee’s age.
shown in the chart on the previous page.
n According to our findings, the main consideration
n Plan sponsors report that the top challenges facing plan sponsors use to determine the company’s
them in the current year in the DC arena, by some contribution is competitive positioning, either from
margin, are ensuring employee understanding (59 the perspective of retention and recruitment or by
percent) and effective communication (57 percent). looking at the retirement programme individually.
These results are echoed by Mercer UK’s recent Work Other factors that influence the level of company
& Savings Survey findings of DC plan members, contribution are corporate compliance guidelines and
which indicates that lack of understanding is the big- the targeting of a particular level of company expend-
gest obstacle they face. iture.

3. Design and benefit adequacy 4. Communication

n Since social security systems (and therefore state n Although 39 percent of companies believe that com-
pension levels) differ significantly from one European munication around DC plans is about educating par-
country to another, the following average contribu- ticipants, another 37 percent believe that communi-
tion rates can only be used for general benchmarking cation should be limited to provision of basic infor-
purposes. mation about the plan. Finally, 22 percent of compa-
­ - The average employer contribution rate is 5 nies cited compliance with local regulation as a com-
percent of pensionable pay. munication objective.
­ - For members, the average contribution rate
(excluding unmatched voluntary contributions) is n Just under a quarter (24 percent) of plan sponsors see
3.75 percent. themselves as adopting a “paternalistic” approach to
their DC plans, proactively trying to ensure that
n Some 41 percent of companies responding use a “flat- members retire with an adequate income. More than
rate” contribution structure where the contribution is half (63 percent), however, see themselves as “facili-
a set percentage of an employee’s pay. Of the remain- tators”, preferring to provide “self-help” materials and
ing 59 percent, about half (29 percent) use a “match- tools for employees. Sponsors of contract-based plans
are much more likely than their trust-based counter
parts to see themselves as paternalistic.

Usage of communication media by DC plan sponsors

Internet/intranetaccess to plan information 61% 21% 18%

Personalised/individual communication 44% 40% 16%

Newsletters, brochures 35% 45% 20%

25% 25% 50% Very important

Interactive computer modelling
Important

Group meetings/seminars 21% 46% 33% Not used

One-to-one meetings 17% 35% 48%

Telephone 14% 28% 58%

Other 7% 7% 86%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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n While there’s a range of communication channels n As for individual financial planning services or invest-
used by plan sponsors, a majority (82 percent) regard ment advice, 76 percent of participants do not provide
websites as a (very) important medium for member such guidance, and the majority of that group does
communication. Also, 84 percent consider personal not anticipate doing so in the near future.
ised communication as (very) important. Surprisingly,
respondents also indicated a heavy reliance on n In 40 percent of the cases, only one asset manager is
printed, generic literature, such as newsletters and available. However, interestingly, another 24 percent
brochures. of the companies responding offer more than three
asset managers, which indicates that open architec-
n In many cases, communications are provided by the ture products are increasingly available.
plan administrator, and the quality of those commu-
nications is considered to be a very important factor 6. Service delivery
in the evaluation of the plan administrator
(53 percent). n While 67 percent of trust-based plans have a service
level agreement with their administration provider,
n Despite websites being generally recognised as the this falls to only 36 percent for contract-based plans.
most important medium for communication, only This discrepancy is interesting, since 55 percent of
little more than half of the companies responding (57 the providers are offering a bundled solution that is,
percent) are offering this feature to plan members. in general, seen as less open to service level agree-
ments.
5. Investment
n Service of the administrator is considered to be an
n On average, DC plans offer 15 investment funds, with important determining factor in the selection of a
little variation between trust-based and contract- provider (77 percent). A service level agreement is in
based vehicles. place for about two-thirds of the plans (65 percent).

n Almost three-quarters (71 percent) offer a default

option, which is used, on average, by 70 percent of
plan members. The most common default is a ”bal-
anced” fund, used by 35 percent of plans, followed by
a “life-cycle” fund (23 percent), where investment risk
is aligned to a participant’s age and gradually reduc-
es over time.

Incidence of service agreements in place with DC plan administrators

Pension/Trust-based vehicle 84% 11% 5%

Insurance-based vehicle 62% 38%

Yes
Pan-European Pension Fund (Institution No
67% 33%
of Occupational Retirement Provision) Not applicable

Other 64% 27% 9%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

4
7. Governance

n For a significant number of plans, there are no formal n The majority of survey respondents monitor their
objectives, goals or policy guidelines. In fact, only 30 plans’ investment performance more frequently than
percent of organisations document their DC plans’ annually. About half perform other investment
objectives and goals, and a written policy only exists reviews – a qualitative review of investment manag-
for 27 percent. Another 25 percent indicate they have ers and/or a review of the number of investment op-
a policy, but it is “undocumented”. tions offered to members – at least annually.

n Less than half of plan sponsors (43 percent) say they n While many sponsors are diligent in undertaking
have established formal measures of success, but timely reviews of key areas of DC plan operation
only 17 percent actually document those success (especially in the regulatory arena), for a substantial
measures. minority some aspects are never reviewed – notably,
appropriateness of investment choices (45 percent).
n More than half of the companies surveyed compare
their providers’ service against the service level n On the other hand, benefit adequacy is either moni-
agreement at least once a year. One-third of compa- tored annually (37 percent) or every two to five years
nies look at their agreements less frequently. (40 percent).

n Less than one-third of companies responding

benchmark their providers’ level of service and
fees against those offered by other providers
on an annual basis. Most do this evaluation
on a regular basis, but less frequently than annually.

Existence of policy on the DC provision at corporate level

Investment guidelines 41% 15% 44%

Operational and administrative guidelines 39% 28% 33%

Plan objectives and goals 30% 30% 40%

Governance business plan 28% 25% 47%

Documented policy

Strategic direction 26% 22% 52% Policy but not documented

No policy
Communication guidelines 25% 32% 43%

Success measures 17% 26% 57%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

More details
To discuss any aspect of these survey highlights or to If you would like to receive a copy of the full report
find out how Mercer can help you to design, man- when it is available, please ask your local Mercer con-
age and communicate your DC plan more effectively, sultant or send an e-mail with “European DC Survey”
please contact your local Mercer consultant or: in the subject line, including your name, position and
organisation to:
Tim H. Burggraaf marketing.uk@mercer.com
Tel: +31 (0)10 4060 874
tim.burggraaf@mercer.com
www.mercer.com

5
Argentina Malaysia

Australia Mexico

Austria Netherlands

Belgium New Zealand

Brazil Norway

Canada Philippines
Philippines

Chile Poland

China Portugal

Colombia Singapore

Czech Republic South Korea

Denmark Spain
For further information, please
Finland Sweden contact your local Mercer office
or visit our website at:
France Switzerland
www.mercer.com
Germany Taiwan

Hong Kong Thailand

Hungary Turkey

India United Arab Emirates

Indonesia United Kingdom

Ireland United States

Italy Venezuela

Japan

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