Employers may level down pensions to meet auto-enrolment costs

Around 41% of employers are likely to level down pension benefits to meet the cost of auto-enrolment, according to research by the Association of Consulting Actuaries (ACA).

The association’s survey, conducted as part of its input to the government’s review of the national employment savings trust (Nest) and auto-enrolment, also showed that although employers said they are likely to reduce future benefits in existing and new schemes, under half have actually budgeted for any cost.

While 75% of employers support the principle of auto-enrolment, 70% feel the auto-enrolment regulatory regime appears complex. In addition, 64% said the new rules requiring employers to re-enrol those that opt out every three years should be removed

Meanwhile, 75% said employees with less than three months’ service should not be auto-enrolled, as required under the new rules and 73% want minimum pension contributions to be based on a percentage of basic pay rather than full earnings.

More than 60% of respondents said employers with fewer than five employees should be exempt from auto-enrolment.

Stuart Southall, chairman of the ACA, said:“While the full cost of auto-enrolling all eligible employees will not hit most organisations until 2017, it is only right that the costs of auto-enrolment, including the administrative challenges, are addressed and tested as soon as possible.†

“Larger employers must act in the run-up to 2012. That is why we have welcomed the review commissioned by the coalition government and have separately made our own recommendations as to how the overall policy can be simplified and improved, taking account of the need to support quality provision and against the much changed financial backcloth since the reforms were first launched.”

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