Most small firm pension schemes may be forced to shut in 2012 unless the Government cuts the benchmark for exemption from personal accounts, a study suggests.
The Association of Consulting Actuaries (ACA) says 55% of UK firms with 250 employees or less believe their existing workplace schemes fall short of the Government’s exemption test.
According to the study, which surveyed more than 390 small firms, more than 60% also currently pay lower contributions than those proposed for the nationwide scheme.
One third of firms expect to reduce their pension scheme benefits or to close their scheme in favour of personal accounts, ACA says, while four in ten small firms with existing or no pension scheme arrangements expect opt-out levels by individual employees to exceed 40%.
However, ACA claims the study finds that personal accounts and auto-enrolment would boost pension coverage in the UK smaller firms sector.
To secure exemption, schemes must be at least as good as the personal accounts minimum standard, with an employer’s contribution of at least 3% and an employee’s contribution of 4%, plus 1% tax relief.
ACA chairman Keith Barton says the minimum benchmark for smaller firms may have been set too high. “[The survey] points to the huge challenges there are in achieving wider pension coverage in smaller firms,” he says.
“Yes it is very clear that there is a huge under-pensioning of millions of employees, but our survey suggests the benchmark set by the Government may weigh very heavily on smaller firms, particularly if economic conditions are not good at the time auto-enrolment and personal accounts are launched.”
John Lawson, head of pensions policy at Standard Life, says the survey highlights the “potential toxic effect” personal accounts could have on existing schemes.
“The key problem is the exemption test; not the generosity of employers,” he says. “The government needs to simplify this test so that generous schemes can continue to contribute 8% or more of basic pay.”
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