ACA is calling for action on stalled pension reforms saying that a crisis is brewing ahead.
According to ACA’s final report of 2021 Pension trends which includes responses from 212 employers of all sizes sponsoring over 400 pension schemes, employers support a minimum AE contribution of 12 per cent of total wages, of which 6 per cent is paid by employees. But 84 per cent of employers believed that AE contributions will not be increased during this Parliament due to the introduction of the new NHS/Social Care tax.
The survey also found that as a result of the Covid epidemic, the number of employers witnessing AE cessation rates increased, from one in ten to one in five. Also, with appropriate safeguards, 67 per cent say they would support paying an employer contribution into a more flexible savings vehicle that could be used for retirement savings as well as other reasons such as home purchasing.
Additionally, 89 per cent agree that the current pension taxation structure is too cumbersome and needs to be simplified.
Despite the fact that the current requirements only apply to schemes with assets over £5bn, 33 per cent of all schemes have established or are in the process of setting climate targets. A target based on emissions has been included in half of them, with 70 per cent of them aiming for “net zero.”
Furthermore, due to the magnitude of the increased obligations that trustees are expected to take on as a result of additional regulatory requirements, 76 per cent of employers expect more trustees to contemplate departing. At the same time, over the previous two years, 7 per cent of schemes have switched to sole trusteeship governance, demonstrating the detrimental impact of increased regulatory burdens.
The survey also found that in preparation for pension dashboards, 51 per cent of plan trustees/governing bodies claim they have taken steps to clean up pension data. The same small majority supports dashboards that are launched with only the most basic information.
Another key finding is that employers overwhelmingly approve the TPR’s DB Funding Code Consultation’s “Seven Key Elements.” They also increasingly support the availability of Collective Defined Contribution (CDC) schemes, with 54 per cent supporting the expansion of CDC schemes to include industry-wide and multi-employer CDC schemes.
ACA chair Patrick Bloomfield says: “Our survey found British business is rightly worried that we’re not saving enough and supports increasing auto-enrolment minimum contributions. Doing so would address inequities in today’s pension landscape, which hit women, minority groups and the poorest hardest. Extending this to make pensions more flexible and better integrated with later-life social care would help everyone.
“The Government’s inaction in this policy area is particularly concerning. We are seeing millions of workers in DC schemes ‘sleep walking’ towards levels of income in retirement in the years ahead that will fall far short of the incomes of millions of current pensioners who have benefitted from defined benefit arrangements. Without a plan for increasing saving levels, the younger generation of taxpayers of tomorrow will face enormous bills to support the elderly in retirement, dwarfing the extra funds recently allocated to social care.
“The ludicrous complexity of pensions tax is also preventing Britons from saving. It is time for a root and branch review, to get us saving for our futures. Again, no action has been taken.
“Businesses and savers want flexibility with digital access through dashboards – where progress is again worryingly slow and increasingly unlikely to meet the stated launch timetable.
“Our survey found it’s not all doom and gloom. There remains strong business support for pensions becoming central to tackling climate risk, with savers demanding action and schemes beginning to grasp the nettle. And there’s an increasing appetite beyond Royal Mail for Collective Defined Contribution as a new way of saving, provided the regulatory regime is proportionate and is extended widely to more employers in a timely way.”