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Employers not budgeting for 2012 auto-enrolment

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UK - Employers claim payroll costs could increase by 3-4% if they auto-enrol staff into existing workplace pension schemes, yet just 32% of those planning to take this step from 2012 have so far budgeted for the change, the Association of Consulting Actuaries (ACA) has revealed.

The second report from the ACA’s 2009 pension trends survey, ‘Pension Reform: A pig in a poke?’ said 59% of all employers plan to review their existing pension arrangements ahead of 2012. This figure increases to 865 of small firms - those with less than 250 employees.

ACA claimed the survey of 309 employers found that UK firms are “pretty unprepared” for the 2012 reforms - which will see employer contributions phased in over a three-year period and require auto-enrolment of all staff into a qualifying pension scheme such as personal accounts. (See earlier IPE article: UK: DB schemes given 3-yr auto-enrolment deferment)

It noted that only one in five employers currently auto-enrol employees into a pension scheme, although a further one in five plan to introduce auto-enrolment ahead of the commencement of employer duties in October 2012. (See earlier IPE article: UK: WPP default fund charges ‘should have stakeholder cap’)

However, once the staging process begins - it is expected larger employers will be required to begin auto-enrolment first - then 59% of all employers said the plan to auto-enrol all their employees into their existing scheme. Just 28% predicted they will restrict entry and auto-enrol the remainder into personal accounts.

But ACA said “far more employers seem to have decided to auto-enrol staff into their workplace scheme than have budgeted for such a decision”, at just 32%. And those employers that have prepared for this move predict auto-enrolment could result in a 3-4% increase in payroll costs.

ACA therefore warned that as 2012 approaches and “more employers do their sums, the number of employees excluded from existing schemes will rise, particularly if the economic position remains unstable”.

The survey - which was conducted in July before the latest draft regulations consultation was released - revealed 41% of smaller employers have admitted they will consider closing their existing scheme in favour of personal accounts, while 54% “are likely to revise benefits to mitigate the costs” if they auto-enrol employees into the existing scheme.

Keith Barton, chairman of ACA, said: “The message is clear - good schemes are falling under threat from these well-intentioned reforms. This will mean an increasing number of employees currently in good schemes, and those joining from 2012, are set to receive pensions that fall far short of their needs.”

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