Employers plan to take advice from IFAs as well as the government and industry bodies when implementing new personal accounts.
A survey by BMRB on behalf of the Department for Work and Pensions (DWP): ‘Employer Attitudes to Personal Accounts: Report of a Qualitative Study’ reveals employers would also prefer face-to-face advice and information.
The 118-page report says employers would expect the government to provide information on the new scheme and associated regulations, but would also take advice from IFAs, accountants, trade unions and industry bodies.
In addition employers who have existing pensions but with low membership levels stated they would be reluctant to provide information to employees unless it involved handing out a standardised ‘information pack’ from the government.
Employers argued as they are inexperienced in pensions they felt ill-equipped to give information which they regarded as “giving advice”, and believed they would not carry out the process very well.
The report reveals employers believe a good helpline service and online facilities for managing personal accounts and gaining information are important factors, although they felt both employers and employees should have access to personalised information about any new pension arrangements.
Overall the report suggests employers are quite welcoming of the new system depending on their size and whether they already have a pension scheme in place. And it claims there is “very little evidence” of employers offering more than 3% contributions planning to ‘level down’ their contributions.
Instead the report suggests these employers were likely to apply for exemptions from the new arrangements, as they see their existing pension scheme as an “important recruitment and retention tool”.
Employers also seemed to support the introduction of auto-enrolment and the idea of a portable pensions account, although some smaller companies expressed concerns about the costs of administration particularly in companies with a low scheme membership, or no scheme at all.
In addition smaller companies felt they would not be able to absorb the costs of 3% compulsory contributions through one of the three most popular strategies:
- Absorbing the costs through profits
- Passing on the costs through increased prices
- Passing on the costs through wages
The report also notes there was a limited mention of re-structuring, and a few employers did suggest the possibility of closing their business as a result, however some believed they may be able to afford a 1-2% contribution provided it was phased in over a period of time.
Meanwhile the size of employer also determined which model for personal accounts they favoured, with smaller employers and those with low membership of existing schemes preferring a National Pension Savings Scheme (Npss) model.
The report suggests they favoured this model as it seems the most straightforward and offers reduced administration, while cutting down the perceived risk of employer liability occurring as a result of having to choose a provider.
Although larger employers, with a high level of membership of existing schemes seemed to be more in favour of an operating model most similar to their current pension arrangements.
Joanne Segars, director of policy and incoming chief executive of the National Association of Pension Funds (NAPF), says the report shows how much support there is for giving all employees access to good value schemes.
However she points out it also highlights how much work still needs to be done on the details, as if the government doesn’t find the right way of running personal accounts the consequences could be catastrophic, as instead of people being encouraged to save, the opposite happens.
Segars says another important point is that pension reforms must not damage existing good quality pension schemes, which could result in more pension savers but less pensions saving if employers are tempted to ‘level down’.
“Having made the big decisions on automatic enrolment and employer contributions, the government must now take time to deign the system properly and minimise the risk of unintended consequences,” says Segars.
She says rather than rush at decisions which are intended to last for decades and affect the lives of millions of people, it is far more important to take time and get it right.
“If the government continues on this path, there is a risk it may be accused of acting in haste, only to repent at leisure,” adds Segars.
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 Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
Industry Voice: Scottish Widows pension expert Robert Cochran and economist Andrew Scott discuss the future of employment and income, in episode three of Scottish Widows' podcast series.
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