48% of employers plan to limit future pay growth to cover auto-enrolment costs

Almost half (48%) of employers plan to limit future pay growth to cover their auto-enrolment costs , according to a Chartered Institute of Personnel and Development (CIPD) survey.

Among the 1,080 employers questioned for the Labour market outlook: focus on pension auto-enrolment 2014, 19% expect to reduce hiring or cutting jobs.

Just 26% think that they will be able to absorb their costs while 18% think that there will be no additional expense.

The survey also found that the majority (70%) of employers have already carried out, or are planning, a review of their pensions arrangements to ensure that they meet the new legal requirements, with 57% of organisations having also reviewed, or planning to review, how their HR, payroll and pension administration systems interact. 

Over two thirds (68%) of employers have automatically enrolled eligible workers into a pension scheme. 

Less than 10% of auto-enrolled employees have opted out of their workplace pension scheme in 46% of organisations, which is less than originally forecast by the Department for Work and Pensions.

Others findings from the survey include:

• The average employer contribution to the pension schemes of newly-enrolled staff is 5.6% of salary, while the average employee contribution is 4.7%.
• The typical employer contribution in the private sector is 4.5% and the average staff contribution is 3.9%.
• Currently, the legal minimum requirement is that employers and employees contribute 1% each.
• Just 7.4% of eligible staff who have been auto-enrolled into a workplace pension have chosen to opt out.
• Among private sector firms the opt-out rate is slightly higher at 7.7%. By employer size, the opt-out rate is higher among large organisations (7.9%) than among small and medium-sized ones (5.9%).
• Midlands-based organisations have achieved the lowest opt out rate (5.8%) while in the South the rate is higher (8%).
• Accommodation, food service activities and arts, entertainment and recreation, information and communication and administrative and support service activity firms report average opt-out rates higher than 10%.
• 51% contribute less than 6% of pay to the pension pots of newly-enrolled staff. 

Charles Cotton, the CIPD’s performance and reward adviser, said: “So far, pension automatic-enrolment has been a success. It’s been the wake-up call we needed to get the UK saving for the future. Employers are in many cases going above and beyond the requirements and the majority of workers have opted to stay in the scheme.

“However, in the coming months, we need to keep a close eye on the number of workers leaving the pension scheme and what can be done to encourage them to stay. We also need to explore ways that we can increase the amount of money going into saving for retirement.

“It’s concerning that many micro, small and medium-sized employers think that they may have to cut or restrict salary growth or reduce hiring to pay for automatic enrolment. Our survey last year found many organisations predicting negative consequences in terms of employment and pay due to the pension changes, and these do not appear to have materialised.”

He added: ”To mitigate any possible negative consequences, employers need to plan in advance, look at the cost implications, examine the potential responses and evaluate which ones meet the needs of the business, its employees and workers.

“Auto-enrolment is just the start. For pension schemes to remain relevant to businesses and employees they must be regularly reviewed to ensure that the plans are performing and that employees appreciate and understand what is being done for them and why.”