About Us Consumers Advisers Employers Media

You are not logged in.

• Log in
• Register

Employer  >  Trustee Zone  >  OPS Matters  >  Personal Accounts - the last straw?

Personal Accounts - the last straw?

It's now a well known and documented fact that DB pension provision in the UK is in decline, and has been for some years now.

More worryingly for supporters of trust based schemes, figures from The Pensions Regulator show that only one quarter* of DC schemes set up since 2004 are trust based.

The reasons why this is happening are also well documented. Longevity and increased legislative and regulatory burdens leading to increased costs to employers are among them.

In 2012, it's proposed (and seems certain) that there will be a new tier of pension provision in the UK and many commentators see this as a threat to the trust based pension system. Known as the National Pensions Savings Scheme, or Personal Accounts (PAs), it could be one of the biggest changes to the pensions landscape we've seen for a while. The general idea is that if an employer doesn't offer a comparable or better pension scheme than that available under PAs, they will have to auto-enrol their employees into PAs. And even if a comparable or better scheme is offered, there will still be the requirement to auto-enrol employees into that scheme.

Why bother?

Employers may well be asking themselves that very question. Changes to an established pension scheme inevitably mean a cost to the employer (even if the result is an eventual saving) and auto-enrolment is no exception. According to the NAPF, the cost to the industry could run into billions**.

Other figures, this time from the Pensions Policy Institute, suggest that auto-enrolment into pension schemes encourages employee take-up. A good thing for employees, but maybe not for employers who may be faced with an increased contribution bill to support these members***.

Level down?

For those employers who want to continue to offer a trust based scheme, the answer to the cost question may be to 'level down'. In other words either reducing their contributions to established pension schemes, or reducing accrual, so that they fall within the bare minimum to be exempted from the requirement to offer PAs.

Ultimately, employers may just get rid of the existing scheme altogether and just use PAs at a minimal contribution level for their employees. It's the potentially cheaper, easier, and safer route.

There are plans however to prevent such levelling down as government continue to see work-based pension schemes, especially the trust based variety, as valuable and desirable. So whilst levelling down may be an option for employers in 2012, don't expect it to be easy.

Be prepared

Being prepared is really the best that trustees can just now. By keeping up with the issues they'll be ready to take the impact of PAs from a position of understanding and strength and have meaningful discussions with the employer as to which route forward is in the best interests of the member and the employer. It's trustees like that whose pension schemes may well continue beyond 2012 but for some, it may well simply be the last straw.

Sources

*TPR - The governance of work-based pension schemes - April 2007.

**Pensions Policy Institute - The changing landscape for private sector defined benefit pension schemes - 8 October 2007.

***Pensions Policy Institute - Will Personal Accounts increase pension saving? - November 2007.