Strong support from employers for automatic-enrolment
The Department for Work and Pensions (the DWP) has just published a research report into employer attitudes to the proposed Personal Accounts that the recent White Paper detailed. This is part of a wider programme of research and analysis that is being undertaken so that the Government can be sure it is on the right track with its reforms.
The main findings of the research seem to indicate that not only are ministers on the right track, but they are apparently spot on.
The main findings, as published in the DWP press release the other day, are as follows:
- Strong support for automatic enrolment across all types of employers – this would encourage saving for retirement, help overcome inertia and increase the take up of pensions. This finding is borne out by findings, already published in the Government’s White Paper on pension reform, which show that a majority (60%) of employers are in favour of automatic enrolment.
- Employers supported the idea of a portable pension account which employees would take with them when they moved employers.
- There was general consensus among employers that the balance of employee and employer contributions proposed by the Pensions Commission was acceptable (four per cent post-tax employee contribution, three per cent from the employer, and one per cent from the state as tax relief).
- Employers’ views on the idea of a 3% minimum employer contribution varied. Some thought it was about right or even too little. Similarly, findings, published in the Government’s recent White Paper on pension reform, indicate that a majority of employers (57%) think that a requirement for a minimum employer contribution is a good idea.
- Others, particularly smaller employers and those not contributing to a pension scheme, expressed concerns. Employers with concerns about a minimum employer contribution of 3% felt that phasing in the level of employer contribution over time would allow for financial planning.
- Small employers also supported the idea that the scheme should be phased in by employer size with them being the last to comply.
- In general, employers suggested they would respond to a requirement of a 3% minimum employer contribution in three main ways - absorb additional costs through profits; pass costs on through increased prices; or pass costs through to wages. There was limited mention of re-structuring and only a few employers mentioned the possibility of business closure.
- There was little evidence in this research of the prospect of ‘levelling down’ of existing pension provision in response to the Government’s proposals. Employers currently operating pension schemes with an employer contribution of 3% or more reported they viewed their pension scheme as an important recruitment and retention tool that they would want to keep.
- Overall, smaller employers and those with a low take up of their existing pension scheme favoured the proposal for a National Pension Savings Scheme as it was perceived to be the most straightforward and to minimise the role of the employer. By contrast, larger employers, particularly those with a high take up of their existing scheme, wished to retain their own schemes arranged directly with providers.
So, on the face of it this is all looking pretty good. Employers are more than comfortable with their employees being automatically enrolled in pension saving and they like the idea of portable pensions that follow employees around and don’t get left with employers to look after. They also think that the balance of contribution is about right with 4% being paid by employees, 1% being paid by the taxman and the other 3% being paid by employers. But smaller employers would like their 3% contribution requirement to be ‘phased in’ over a period of time to allow them the chance to pass the cost on to their employees by adjusting remuneration levels (something that’s not easy to do all of a sudden). They say they may even be able to use the time to ‘absorb’ the costs by passing them on to their customers through higher prices on their goods or services, or reduce the profits made by their business, but I don’t think I’m the only person on the planet who rather doubts the likelihood of either of these alternatives. In the same way I suspect I’m not alone in thinking that we should be wary when employers tell us we needn’t worry about the so-called ‘levelling down’ of existing pension schemes that many are predicting if we set out on this road. Like, right!
This survey which gives us a clear indication of the attitudes of millions of employers was, I notice from the small print, conducted through a massive programme of interviews with seventy five employers. What’s not clear is just how clued-up that large group of employers was on the likely effect of means-testing on the savings of their employees and the fact that, for many of them, pension saving is highly likely to be quite unsuitable. But perhaps employers just don’t care about such things? I suppose if people are happy to save 7% of their earnings in return for a 1% addition in tax relief they’ll also be happy if their savings are eventually docked by 40% too if they qualify for the Pension Credit? That wouldn’t have much appeal for me, but perhaps I’m not normal?
9 August 2006
Department for Work and Pensions Research Report No. 371 "Employer attitudes to personal accounts: Reports of a qualitative study" published 1 August 2006.
Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally