Employers remain committed to workplace pension schemes despite soaring costs. But change is on the horizon according to research conducted by the National Association of Pension Funds (NAPF).
The survey –34th National association of Pension Funds’ Annual Survey of UK Pensions Funds 2008 – a study of 327 fund managers – shows that employers are forking out for higher levies and spending more on fund management and adviser fees.
Despite this more than a quarter of private sector defined benefit schemes are still open to new members and the rate of closure has remained stable at 3%. But a fifth say they will level down, either by lowering contributions or switching new employers to Personal Accounts from 2012.
Joanne Segars, chief executive of the NAPF, said: “Our survey shows that, despite market turmoil, employer commitment to pensions remains strong. Workplace pensions continue to provide a valuable source of income for millions of working people now and in the future. However there is still much outside pressure on pensions schemes. Government regulators and standard setters must take action to ensure the regulatory framework encourages good quality pension provision and continued employer commitment.
“This must include ensuring that the impact of personal accounts and the auto-enrolment in 2012 does not places unnecessary and unwelcome additional administrative costs on schemes and that the government sticks to its commitment to deliver a lighter tough regulatory regime for workplace pensions.”
The survey shows that costs are soaring. Defined benefit (DB) pensions schemes are spending on average 74% more on pensions levies than in 2007. In May the Pensions Protection Fund (PPF) set the scaling factor for the levy’s crucial risk-based element at 3.77 for 2008-09, more than 50% above the 2.47 applied the previous year. The PPF, however, plans to reduce the levy for 2009/10 to 2.22.
In addition, the survey found that schemes were shelling out 20% more cash on fund management and 19% more on fees to advisers than the same period last year.
Despite increased running costs, DB closures in the private sector have slowed and more than two million members remain within the 28% final salary schemes that remain open. But 21% of these schemes may be swapped by defined contribution (DC) schemes in the future.
The introduction of auto-enrolment continues to have an impact on both DC and DB pensions with 67% of schemes planning to use current contribution rates after 2012. One in five respondents said they would level down either by lowering contributions or switching employees to personal accounts.