Over two-fifths of larger companies in the UK are looking at ways of reducing the cost of their company pension schemes, in a move which could adversely affect pension provision and pension income for employees.
The news reflects a general trend towards reduced commitment to company pension schemes throughout the private sector, and underlines the need for employees to seek quality pension advice on their retirement planning and projected pension income.
The Association of Consulting Actuaries has interviewed top executives at over 200 employers with company pension schemes, and found that 41% of them believe they are ‘highly likely’ to cut the cost of their company pension scheme, after the launch of the National Employment Savings Trust (NEST) from 2012.
NEST is the government-backed initiative to make company pension schemes widely available through all companies, and under current proposals will be gradually introduced on a phased basis from 2012-2017.
While there are suggestions that the scope of the NEST scheme may yet be modified ahead of the 2012 launch date, several elements in the plan, as it stands at the moment, are a source of concern for employers.
All employees are to be ‘auto-enrolled’ into the company pension schemes that must be put in place to meet the requirements of the NEST. Only after auto-enrolment can those who do not wish to contribute to the company pension scheme leave it, by actively ‘opting out ‘ of NEST. This strategy is designed to combat the tendency of individual employees towards ‘pensions inertia’ by forcing them to opt out, rather than opt in, to their company pension scheme.
For UK companies with a company pension scheme already in place, pensions uptake is on average 55%, and is predicted to reach over 80% after the auto-enrolment process. This will impose significant additional administrative costs on all company pension schemes.
The Association of Consulting Actuaries also found significant opposition to several other requirements with the NEST scheme. Their results revealed that 64% would like the removal of rules on employees who opt out, requiring that they be re-enrolled every 3 years.
Furthermore, 75% of employers oppose the requirement that employees with less than 3 months’ service should also be auto-enrolled. This would force the enrolment from day one of new employees, who may be in a probationary period with the company, and would also force companies who use short-term seasonal workers to include them immediately in their company pension scheme.
