A major survey by the
Association of Consulting
Actuaries (ACA) into pension trends in companies of all sizes has found
widespread disquiet about the government’s reforms to introduce personal pension
accounts in 2012.
In short, under the government’s proposals, from 2012 all employees will be
‘opted in’ to a company pension scheme or a personal account, with the latter
requiring a minimum employer contribution of 3% of salary (unless the employee
The ACA survey reveals that a clear majority of employers (68%) expect the
introduction of personal accounts to lead to a levelling-down in employer
pension contributions as firms – particularly smaller ones – struggle with the
costs. Three-quarters of businesses believe the reforms will accelerate the
closure of the better workplace schemes as employers rationalise their forward
The survey findings also suggest that access to good occupational schemes
will be restricted in the future. Close to a third of employers say they are
likely to restrict occupational scheme entry as a result of the proposed
reforms. This restriction on entry into company schemes rises to 42% among
There are a number of key issues here. First, will the proposed government
reforms achieve what they are designed to do? Well, more staff may be covered by
some pension arrangement, although many will have real fears as to whether the
private pension delivered will merely offset state benefits that are lost. If
these fears gain currency, the opt-out rate could be high in the target market.
Second, the extra costs of the proposals to firms will vary considerably
depending on the existing pension spend and take-up of workplace schemes.
Financial directors need to start thinking about the costs and HR consequences
of the changes. There may be an opportunity to rationalise and cap costs,
spreading pension benefits more thinly across more staff, but does that approach
support or undermine the future of the business?
More encouraging is that 72% of employers support the promotion of
risk-sharing schemes. As final-salary defined-benefit schemes close,
risk-sharing schemes offer employers the opportunity for better cost control,
while also providing a more stable platform for retirement income than
defined-contribution schemes do. Current legislation restricts their widespread
application, but the government’s deregulatory review of private pensions, due
to report in July 2007, could encourage their wider application.
Ian Farr is chairman of the Association of Consulting
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