DC pensions fair well in market surge but timing of retirement is crucial – Mercer

Surging equity prices mean that many employees may be able to work fewer years than recently feared in order to retire on a reasonable income, according to calculations from Mercer.

Mercer’s new “DC Barometer” shows that on the basis of stock market conditions and annuity price movements between the end of December 2008 and the end of December 2009 a scheme member considering retirement will now have to work around 15 months less in order to retire on the same expected income.  

The DC Barometer looks at the impact of the movement in annuity rates, investment markets and contribution rates and is a measure of the pressure being exerted on DC savings as well as members’ ability to afford to retire when they plan to. The information is used to illustrate how a member’s plans for retirement might improve or worsen over time.
Steve Charlton, a principal and senior consultant at Mercer says: “With the recent turbulent stock market conditions and volatile annuity prices, the outlook for people nearing retirement is looking better now than it has over the last nine months. At the worst point, in March 2009, a member would have found themselves working on until nearly age 67 instead of 65, to achieve the same level of income.

“To manage the uncertain timing of retirements and the impact on their businesses, companies should begin to form a better picture of the adequacy of the benefits in their pension plan. Keeping an eye on how well their employees prepare for retirement will also provide a good idea of when they are likely to retire. There is also an opportunity to step in and provide guidance if needed.”