Firms aim to cut pension spending

A THIRD of larger employers are looking to cut their spending on workplace pensions in anticipation of extra costs when staff are automatically enrolled into workplace schemes next year, according to a new report.

A survey by the Association of Consulting Actuaries (ACA) found that only one in four employers had budgeted for the cost of auto-enrolment.

The study of more than 460 employers also revealed that larger firms expect up to 17 per cent of staff to opt out of workplace pensions after the change next year, rising to 39 per cent in smaller organisations.

More than one in four employers said they were likely to review their pension benefits to mitigate the cost of higher scheme membership, rising to over a third among larger employers.

Most workers not in a scheme said they could afford to or were disillusioned with pensions, said the report. ACA chairman Stuart Southall said the results of the survey were “alarming”, adding: “They point to a rising trend amongst employers of all sizes to review existing pension arrangements and, given the economic climate, for a goodly number to seek ways to reduce their pension costs.

“It appears the austerity message has been grasped by many private sector employers as they begin to focus on the potential costs of pension reforms around the corner from 2012.

“This is understandable, but with not much more than a third of private sector employees now in pension arrangements and with many of these set to deliver very modest retirement incomes, the survey findings are disappointing in terms of the need to boost rather than diminish retirement incomes into the future.

“With contribution rates into many schemes failing to keep pace with the pension costs of longer life-spans, and with employers expecting – and in some cases relying upon – high anticipated levels of pension opting-out for budgetary purposes to keep their auto-enrolment costs down, warning bells are ringing.”

The survey follows a recent report, which revealed that more than half of workers do not know about next year’s reforms.