Small employers do not support consolidation

Only a fifth of small employers surveyed believe the government should encourage scheme consolidation in the pensions market, according to research by the Association of Consulting Actuaries (ACA).

Its report, Challenges ahead for the new medicine, forms the second part of the ACA’s Smaller firms’ pension survey, which was published in January. It looks at pension trends among smaller organisations with 250 or fewer employees, focusing on questions posed to employers following the publication of the Department for Work and Pensions (DWP)’s Workplace pensions reinvigoration paper in November 2012.

The research also found:

  • 67% of respondents do not believe a smaller number of larger schemes will result in better value for money for savers and/or employers.
  • Respondents that do not currently offer a pension scheme are more positive about the value of large multi-employer schemes (42% are supportive) and government intervention (supported by 39%).
  • A third of respondents support automatic-escalation schemes, whereby members’ pension contributions increase at a future date, often in line with wage increases, while 22% said they would consider adding such a feature to their scheme.
  • 17% of respondents said that a money-back guarantee of members’ contributions at either retirement or death would make a significant difference to employees joining a qualifying default fund run by their scheme, while 32% said this would make a marginal difference.    
  • 67% of respondents do not support the government facilitating and encouraging the development of large collective schemes where, for example, investment, inflation or longevity risks might be shared between members and employers.
  • 66% of respondents do not support the government encouraging businesses with small defined contribution (DC) arrangements to merge these into multi-employer schemes.   

Andrew Vaughan, chairman at the ACA, said: “Smaller firms employ the majority of private sector employees and the trend-line is that the percentage share is increasing quite rapidly. 

“It is vital that the auto-enrolment and reinvigoration agenda is pursued so a significant proportion of these firms’ employees are placed in high-quality pension schemes that offer value-for-money. 

“We must not be too prescriptive in terms of complex regulatory rules, but it is vitally important that government, the pensions and financial services industries and representative bodies of smaller employers come together to make sure smaller employers grasp the opportunity to enrol millions of new pension scheme savers from 2014 in products that are sustainable and good value.  

Sign up to our newsletters

Receive news and guidance on a range of HR issues direct to your inbox

OptOut
This field is for validation purposes and should be left unchanged.

“In my view, it would be disastrous if smaller firms’ employees are auto-enrolled en masse into products from 2014 that offer poor value and weak governance. It places immense pressure on government to make sure its reinvigoration programme is pursued at some pace, ideally supported by the opposition so legislative changes can be agreed in quick time. 

“It would be a missed opportunity if providers and employers are unable to offer some new designs because of reforms moving too slowly over the next year or so.  We are encouraged that the pensions minister seems aware of the challenges ahead.”