This year will finally see the introduction of legislation under the Pensions Act 2008. From October, the first tranche of employers (those with more than 120,000 staff) will be required to comply with the reforms, which will see the introduction of automatic enrolment to a qualifying pension scheme, compulsory minimum contributions for employers and employees, and the national employment savings trust (Nest) as an alternative to employer-sponsored schemes.
Since the reforms entered the pipeline, there has been much speculation about their impact on employers, specifically whether auto-enrolment and compulsory contributions will lead to increased costs. This year, just over half (51%) of respondents say this will be the case.
Surprisingly, 28% claim they do not yet know whether the reforms will increase their costs. This suggests they have yet to assess their new obligations.
Some employers may have been awaiting final clarification of the details. This only came earlier this year, when some of the staging dates by which employers must comply with the reforms were delayed. Those that have yet to start planning may not have to comply with the new legislation for several more years.
Employers that do not anticipate any cost increases may already offer a pension that has good take-up and offers contributions above the new minimum level, or they may have got a head start in complying with the reforms to absorb cost increases over a longer period.
The most popular method of dealing with increased costs remains to absorb them within the business. This is cited by 45%, broadly similar to last year’s 42%.
However, this year has seen a rise in the percentage that say they have yet to agree a strategy to deal with increased costs. Some 39% say this is the case, compared with 10% last year. Perhaps a lack of clarification on some details, plus speculation about delays to staging dates, prompted some to put their plans on ice.
Just under one-fifth (15%) of respondents have begun accruing for costs now, enabling them to build up a reserve.
It is encouraging to see that just 3% say they will cut other non-pension benefits, and only 1% will reduce employer pension contributions for all staff, as a way to offset extra costs.
Read more Benefits research 2012