The ACA survey, of firms with up to 250 employees, found 55 per cent would not meet the Government’s requirements for personal accounts exemption. Firms with up to 250 employees generate over half of the UK’s business turnover and employ 59 per cent of the working population.
Their 9 million employees in over 1.2 million businesses are generally under-pensioned and are a key target for the Government’s new personal accounts.
Around 80 per cent of these firms currently offer no workplace pension scheme. Over 60 per cent of schemes were paying lower contributions than proposed for personal accounts, particularly amongst the smallest firms. Where a workplace scheme is offered in firms employing 50 or fewer staff, average combined employer and employee pension contributions are below 5 per cent of earnings, and only around 1 in 5 of these 1.2 million firms run such a scheme.
The smallest firms with an existing scheme or with no scheme expect opt out levels by individual employees to exceed 40 per cent. Affordability is seen as the principal reason likely to drive the opt out decision, not the loss of means-tested benefits in retirement.
Meanwhile, 31 per cent of firms expect to reduce their pension scheme benefits (to mitigate the cost of higher membership) or to close their scheme in favour of personal accounts.
Over 90 per cent of the defined benefit schemes in the sample are closed to new entrants with half closed to future accruals. No firms are prepared to auto-enrol into a defined benefit scheme.
Keith Barton, chairman of ACA says: “Our latest survey in the sector points to the huge challenges there are in achieving wider pension coverage in smaller firms. 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.
“Of particular concern is firms’ expectation as to how many of their current pension schemes will fall short of exemption from personal accounts, and the scheme reviews and levelling-down that might therefore occur, alongside high opt-out levels by individuals. Whilst a phased introduction of the reforms will help, we do wonder whether the minimum benchmark for smaller firms has been set too high.”