Support waning for 2012 pension reforms

Support appears to be declining for the government’s pension reforms due to be introduced in two years’ time.

From 2012, the national employment savings trust (Nest) will see employees automatically enrolled in a pension scheme unless they choose to opt out, and Nest will cover staff whose employers do not have their own scheme. However, Nest members will initially be charged 2% of their contribution when they pay money into the scheme, together with a 0.3% annual management charge.

According to Axa’s latest Workplace Pensions report, support among employers for pension reform has halved to 26% from 52% in 2006.

Support for the new pension system grew in relation to the size of an organisation’s workforce. Only a fifth (19%) of employers with up to 50 employees expressed support for the new system compared to a quarter (26%) of those with 50 to 249 employees and 38% of those with 250 employees.

Among larger organisations, under half of those interviewed (47%) said they felt adequately aware of the reforms.

There has also been a seven point fall in companies saying they will be able to “absorb the costs and comply” – to 57% from 64% – and 19% of employers said they will reduce employee numbers as a result, three points higher than in 2006.

However, fewer companies today would use Nest as an excuse to cut pension contributions. One-fifth (21%) of employers say they would ‘level down’ pension contributions to 3% of salary, five points lower than in 2006.

When employees were asked whether they would prefer to have a payment made into their pension or a short-term pay increase, one in four (25%) said they would favour the pay increase, which would be worth significantly less than the pension option over time.

Steve Folkard, head of pensions and savings policy at Axa Life, said: “We expected that support would have grown for the pension reform proposals, but our new findings do not make good reading for policy makers.”

“Support from employers has plummeted since 2006 and many are still contemplating levelling down or reducing head count to manage a higher cost base.

“Dignity in retirement is a genuine issue and we are concerned as to what level of benefit will be provided – particularly in the early years of the scheme before the full contribution levels are reached. The successful implementation of Nest will require much better engagement with employers and employees with more effective information and support programmes.”

The Confederation of British Industry said the high charges incurred by Nest – initially 2% of employees’ contribution and a 0.3% annual management charge – will put staff off the scheme.

John Cridland, CBI deputy director general, said: “The next government needs to revisit the structure of these fees. We must make it easier for the low-paid to save by smoothing the cost, instead of front-loading it. The pensions timebomb is ticking loudly, and more people must be encouraged to save.”

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