This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Find out more here.

An unquantified challenge

  • Print
  • Comment

Nobody yet knows what proportion of existing schemes will meet the new rules

John Greenwood

We all know automatic enrolment is a huge challenge for the nation’s employers. It goes without saying that the experience will be a painful one for the million or so company heads forking out into a pension for their staff for the very first time. Intellectually this feels like a big step for them to have to take. But maybe the bigger challenge is for those employers already offering schemes.

While employers new to offering pension schemes will have the luxury of starting the process with a 1 per cent contribution and then gradually phasing in the balance, those with schemes already in place will have a one-off hit on their payroll costs of perhaps a third of staff signing up to an existing scheme that could have a considerable employer contribution that they will get from day one.

The corporate pensions industry knows how ill-prepared employers are for 2012 and onwards. Research detailing the lack of awareness or readiness of employers to deal with the new employer duties abounds. But how ready is the industry for what is coming?

How many providers or consultancies actually know the proportion of their clients’ pension contracts that will actually satisfy the new rules as qualifying schemes? I am not aware of any at present, although most are currently looking through reams of paperwork to find out. Yet without this information we cannot know the scale of the challenge facing the corporate pensions community. Last year average maximum contributions were 10.6 per cent for employers and 5.9 per cent for employees. But it is the minimums that will count in future as far as
the Pensions Regulator is concerned.

In 2008 the average employee contribution was 3 per cent, next to an employer one of 6.1 per cent according to the ONS. Given this is on all, not band earnings, this may not be too bad, although these numbers are averages, so some will be lower. And treatment of overtime and bonuses will also have to be factored in.

The problem is, we may yet see another round of consultation on what a qualifying scheme looks like, meaning any figures gathered in the coming months can only be described as ’ball park’ until final rules are set.

It may be that a considerable proportion of existing schemes do not meet the new rules. The sooner providers and advisers get some idea of the scale of the task, the better prepared we shall be.

John Greenwood, editor

  • Print
  • Comment

Daily Email Updates
If you enjoyed this article, sign up to receive the latest news and analysis from Money Marketing.

Money Marketing Awards 2015
Put your firm forward as the leading practitioner in your field. Adviser and Advertising categories are open to entries - Enter Now.

Have your sayEdit my profile/screen name

You must sign in to make a comment

Fund Data

Editor's Pick


Are you prepared to process insistent client business?

Job of the week

Latest jobs

View all jobs

Most recent comments

View more comments