Personal accounts could lead to 80% of employer pension schemes reducing their contributions for new employees and those not yet in their existing scheme.
A survey of 750 employers carried out by Deloitte and sponsored by insurers Aegon, Axa, Scottish Widows and Standard Life, suggests most models for delivering the planned personal accounts would undermine existing savings.
Findings suggest while the reforms will mean more people are saving for retirement, those who are already saving adequately could end up with a lower retirement income if they move jobs and receive the lower contributions from personal accounts.
The survey claims the most likely outcome of the reforms is existing schemes will keep the current contribution levels for existing members, while some or all new staff will have to join the less generous personal account system.
And over the first ten years of personal accounts, the survey predicts total employer contributions will fall by more than 10% as reduced contributions for those changing jobs, and a general levelling down approach begins to kick in.
In addition eight out of ten schemes say they may be expected to reduce contributions for future new employees, or those who have not yet joined the existing scheme, although those surveyed suggest there may be some possible exceptions for those in senior roles.
Deloitte says one significant conclusion from the study is reform must engage both the employer and the employee as this encourages interest and ownership and should reduce the impact of levelling down on current pension provision.
The results of the survey follow research of 70 employers by the Department for Work and Pensions (DWP) which revealed while most were supportive of personal accounts, employers recognised the extra costs it would impose and planned to try to offset them through either higher prices or lower pay.
Steve Folkard, head of pensions and savings policy at Axa Life, says the survey shows the issue of avoiding damage to existing saving has to be treated just as seriously as the aim of helping the under-pensioned.
Jim McCaffrey, head of pensions marketing at Scottish Widows, says the findings show the response of employers will be critical to the success of the government’s reform proposals.
He adds: “In particular, it is essential to ensure personal accounts are designed in such a way as to increase overall savings and reach their target market. There is a clear risk of increasing the numbers of savers at the expense of existing savings levels.”
Meanwhile, John Lawson, head of pensions policy at Standard Life, points out levelling down is a real problem as it is a process rather than an event, as people move jobs and go from being existing members of a good scheme, to new starters who have to join the new system with a lower contribution from their employer.
“This shows why the government has to build the new personal accounts to complement current provision, not to replace it or compete with it,” says Ken Hogg, director of industry development at Aegon UK.
He says: “They should become an addition to the pensions landscape for those who aren’t saving, and particularly those who don’t have access to decent workplace pension schemes.”
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