Although less than half of employers have currently budgeted for introducing pension auto-enrolment, just over two out of five expect to level down their contributions for new employees in order to help meet the costs.
According to a survey among 210 large private and public sector employers undertaken by the Association of Consulting Actuaries (ACA), three quarters of those questioned support auto-enrolment in principle. The legislation was due to come into force in October 2012 but is currently subject to a review commissioned by the coalition government.
But the same number believe that staff with less than three months’ service should not qualify and three out of five feel that organisations with less than five staff should be exempt.
Some 52% favour a delay to the scheme, while 47% believe it should not be introduced until legislation has been passed to provide employers with the freedom to offer more flexible pension arrangements.
A further seven out of 10 say that the current proposed regulatory regime is too complex, 73% want minimum contributions to be based on a percentage of basic pay rather than full earnings, while 64% back the removal of rules requiring them to re-enrol ‘opters-out’ every three years.
Stuart Southall, the ACA’s chairman, said: “Whilst the full cost of auto-enrolling all eligible employees will not hit most organisations until 2017, it is only right that the costs, including the administrative challenges, are addressed and tested as soon as possible.”
As a result, the ACA itself proposes introducing a higher earnings threshold before personnel are auto-enrolled in order to avoid mis-selling to people on lower incomes who could lose state benefits.
It also wants to see a delay in auto-enrolling the staff of ‘micro-employers’ to reduce the admin burden in the early years. Trustees of the National Employment Savings Trust should instead have a statutory duty to advise the coalition government on when it is practicable to introduce the scheme for this group.
The body is likewise keen to have “rigid” timescales relaxed in recognition of the practical difficulties in enrolling employees. Re-enrollment every three years should be removed, while a shorter staging period than the current five years should be introduced to reduce the risk of levelling down.
Anti-inducement procedures to stop employers encouraging personnel to opt out should also be clarified for those operating flexible benefits plans.
In relation to pensions tax relief, meanwhile, the National Association of Pension Funds, wants to see those receiving ‘one-off’ benefits due to early retirement or redundancy be able to carry forward some of the benefits into the Annual Allowance for up to five years to prevent them being unfairly penalised.
It also recommends excluding deferred pension schemes members from the reduced Annual Allowance Test to cut admin headaches for employers and suggests reviewing plans to cap pension relief on employee pension contributions at 40%. The aim is to reduce complexity, particularly as the measure is unlikely to yield the amount forecast.
Other proposals include reconsidering whether to include accrued service prior to April 2011 in pension input calculations as it could leave individuals exposed to tax charges aimed at much higher earners.