Companies unprepared for 2012 changes – Watson Wyatt DC survey

Research carried out by the benefits consultancy found 12 per cent of those companies that had considered the changes expect to change their definition of pensionable earnings. Only a quarter had concluded that no changes would be required.
Watson Wyatt’s 2009 FTSE 100 Defined Contribution Pension Scheme Survey found that auto-enrolment, which will become mandatory in 2012, is currently used by just 39 per cent of large company defined contribution schemes, and that 13 per cent of companies had take up rates in their DC scheme of less than a fifth of eligible employees.
Some 55 per cent of FTSE 100 companies have a take up rate of over nine out of ten employees to their DC pension schemes. Among those companies that use auto-enrolment, 90 per cent achieve a nine out of ten take up rate. But 13 per cent of DC schemes have a take up rate of less than one in five, according to the research, none of which use auto-enrolment.
The survey also found average total maximum contributions (employer and employee) to DC pensions has risen to 15.3 per cent (up from 14.7 per cent last year). This is significantly higher than the 8 per cent on salaries between around £5,000 and £33,000 which will be required after the 2012 changes are fully introduced.
The average core employer contribution rate is 6.7 per cent of salary, with average additional matching contributions taking the average maximum employer contribution rate to 10.1 per cent. The average core employee contribution rate is 2.5 per cent, with average additional matching contributions bringing the average maximum employee contribution rate up to 5.2 per cent.
“Switching to auto-enrolment will have major cost implications for a number of employers,” said Paul Macro, a senior consultant at Watson Wyatt. “A significant minority of pension schemes currently have very low take up rates and the switch to auto-enrolment, combined with mandatory employer contributions, will have a major impact on their payroll expenditure.”
“Even among the FTSE 100 employers, many are a long way from being 2012 ready,” said Paul Macro. “And our wider experience shows that smaller companies are less likely to have auto-enrolment, and more likely to have lower or no employer contributions.”