Preparing for Pension Auto-Enrolment

The Association of Consulting Actuaries (ACA), the largest national representative body, published its interim Pensions Trends Survey Report, “Workplace Pensions: The Alarm Bells are Ringing’’, in September 2011. This survey gathered evidence from 468 businesses over the summer and has much to say about findings in respect of preparation and readiness for Auto-Enrolment, including:

Only just over a quarter of employers surveyed have budgeted for the potential increased cost of pension auto-enrolment and 27% are likely to mitigate extra costs by reviewing existing pension benefits.

A third of larger employers are looking to decrease their spend on workplace pensions at the very time when they need to be considering the possibility of a higher spend, with auto-enrolment looming over the next year or so.

Larger employers are basing their budgets on expecting between 12-17% of employees to opt-out of workplace pensions after being auto-enrolled, whilst smaller employers are expecting 33-39% of employees will opt-out of workplace pensions following auto-enrolment.

73% of employers say they are likely to auto-enrol all employees into their existing workplace pension scheme(s), with 21% saying they are likely to enrol all employees into a new scheme.

Employers said that employees who did not presently join their schemes mainly didn’t because of cost (92%) with 61% also not joining because they felt ‘disillusioned with pensions’. Almost all (94%) of the mainly smaller employers responding to the survey without a current scheme in place said ‘cost’ was the main reason they did not provide pensions at present.

Commenting on the survey results, ACA Chairman, Stuart Southall said:

“The results of our latest 2011 Pension trends survey are alarming in a number of ways. They point to a rising trend amongst employers of all sizes to review existing pension arrangements and, given the economic climate, for a goodly number to seek ways to reduce their pension costs. It appears the austerity message has been grasped by many private sector employers as they begin to focus on the potential costs of pension reforms around the corner from 2012.

“This is understandable but, with not much more than a third of private sector employees now in pension arrangements and with many of these set to deliver very modest retirement incomes, the survey findings are disappointing in terms of the need to boost rather than diminish retirement incomes into the future.’’

“As things stand, there is a clear danger of more ‘levelling-down’ – a trend which our surveys have identified for some years now. With contribution rates into many schemes failing to keep pace with the pension costs of longer life-spans, and with employers expecting, and in some cases relying upon high anticipated levels of pension opting-out for budgetary purposes to keep their auto-enrolment costs down, warning bells are ringing.’