Question: Is there a danger that companies with occupational schemes will level down contributions to the personal accounts minimum? Is this the common sense approach to the new rules?
Edmund Downes, Aviva: Yes there is a clear and significant danger.
Although it is impossible to accurately predict what an employer might do, we suspect that those employers with low levels of take-up are most likely to level down. Employers with high levels of take-up are showing some degree of financial commitment for a wide selection of their staff, i.e. pension contributions are expected and valued. Even if those contributions are for some staff lower than the Personal Accounts minimum, it should be possible to convince such employers to increase them for those affected employees. Schemes with low member penetration, whether this is in part deliberate behaviour from the employer or not, are most at risk as the financial impact will be obvious and such employers might find the Personal Accounts minimum as a way of sharing the pain.
I think that we could see such actions as understandable, particularly as the Government have set such a clear benchmark. However, the 8% of banded earnings only should be seen as a sensible contribution rate for those in their early twenties on, and expected to remain on, average or below average earnings for the next 40 years as that was the basis by which it was calculated. For everyone else it might be better to view it as probably the minimum and we should do our best to make sure that pensions don't end up with an aspirational contribution rate of 8% of banded earnings.
Jamie Clark, Scottish Life: In short, yes, there is a real danger of 'levelling down'. Personal Accounts may be seen incorrectly as the standard, 'government approved' pension scheme model. If that model is cheaper than current pension provision, then it's easy to see why employers would consider levelling down.
The Pensions Act tries to tackle this issue by allowing employers to set up or continue with existing 'Quality' schemes. If the benchmark contribution rate for these schemes is 11% of band earnings (3% higher than the Personal Accounts minimum), they will be able to operate a 90 day auto enrolment postponement period. This basically means that the administration burden for employers who set up a 'Quality' scheme will be considerably reduced - a big plus.
Employers should also consider the effect of levelling down on their employees - it's likely to be negative. So there is a strong argument for employers to keep existing better provision going. Although the cost may be higher, the advantages of the postponement period and the positive perception among employees are factors that deserve serious consideration.
Mike Morrison, AXA Winterthur:
This is a very real possibility as further pressures are put on both defined benefit (DB) and defined contribution (DC) and the cost of doing something on a 'voluntary' basis becomes excessive.
It may also be an unintended consequence of the Budget changes to pensions tax relief, as employers who are not incentivised to do their own pensions may well not be interested in doing anything for their employees.
Like many aspects of today's society, the responsibility for saving for retirement will rest very much with the individual
Clarke replacing Balkham
'Deep-dive analysis of client behaviour'
Ways to mitigate April’s increases
The best equity income funds examined