One in four employers would consider levelling down their pension contributions when personal accounts are introduced, representing reduced provision for 2.4 million employees, according to a report by Deloitte.
The report considers whether and to what extent the proposals in the pensions white paper might impact on employer engagement with and the levels of contributions employers will pay into workplace-based pensions.
The survey of 750 employers reveals 60% of employers who have a pension scheme claim their response to the reform programme would be to close the scheme to all or some employees (23%) or reduce contributions for new and/or existing staff (7%).
Furthermore, 24% of employers who are currently making contributions over 3% say they will offer a lower contribution rate “than the one they offer their staff generally in their open pension schemes”, which represents reduced provision for 2.4 million employees.
The report reveals the average employer contribution rate for existing members of pension schemes is 6.2% and the average employee contribution rate stands at 3.8%.
If employers with existing schemes contributed at 3% for those auto-enrolled at reform, 35% of these employers would face an increase in payroll costs of 2% of more.
If these employers maintained their current contribution rates for those being auto-enrolled, 60% would face an increase in payroll costs of 2% or more and 33% would face a rise of 5% or more.
The report also shows the average employer contribution rate post reform might rise by almost 100% from 2.1% to 4%, but this masks a likely fall in contribution levels for existing schemes of up to 8% from 6.2% to 5.7%.
Further in-depth interviews by Deloitte suggest employers with existing pension arrangements generally have a strong commitment to providing pensions for their staff and are positive about the aims of the proposed reform.
But when they were presented with the financial impact of reform for their firm, some employers acknowledged difficult decisions would have to be made when pension reform is introduced, including the prospect contributions might need to be reduced generally.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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