Some 89% of employers surveyed at the Employee Benefits Summit this month said that they expected to face added admin complexity in relation to personal accounts.
This, and the planned contribution structure, would mean that the government’s new pensions system – aimed at increasing individual retirement savings – will dramatically increase employers’ pension costs.
The Pensions Bill – currently making its way through Parliament – has timetabled personal accounts to come into effect in 2012.
Two key elements of the accounts are the use of auto-enrolment, and the intention for pensions contributions to be based on total pay, not base pay.
Employees who are not members of a pension scheme that has applied for an exclusion under the new rules, will be automatically enrolled into a personal account. They are allowed to opt out, but if they do, they will continue to be auto-enrolled every three years and have to opt out each time.
The fact that contributions will be based on variable pay (including base pay, bonuses, sales commissions, overtime and other allowances) could dramatically increase employers’ pensions contribution.
This will also increase administration for employers and payroll staff.
Just over half (54%) of the delegates polled at the Employee Benefits Summit said that personal accounts would solve the pensions crisis, while 46% felt that this wouldn’t be the case.
Tina Odell, pensions manager at Sony, said: “It’s a good first step. It’s not going to solve the crisis, but it gets [everyone] thinking about it, which we can build on.”
But delegates also expressed concern that some employees may still choose to opt out of schemes.
Back to ‘Employee Benefits Report For Financial Directors – June 2008’