UK - The end of contracting-out and means-testing will improve the uptake of auto-enrolment, consultancy PwC has predicted.
The changes, proposed in a green paper unveiled by pensions minister Steve Webb earlier this week, would lead to the introduction of a flat-rate pension, independent from means-testing, as well as the abolition of the state second pension.
Peter Woods, pensions partner at PwC, told IPE a number of employers were concerned about the "appropriateness" of auto-enrolling its workforce, especially those with low earners.
He said that, until the launch of the green paper, companies were worried that potential negative fallout from auto-enrolment would lead to criticism of employers down the line.
"They have to comply with the law, clearly," Woods said. "They have to auto-enrol, but will there be an implied criticism in later years when members find their savings have been means-tested away?"
He added that the end of means-testing removed that fear for most.
Wood said that, based on anecdotal evidence, it was hard to anticipate the uptake of auto-enrolment, with one company he spoke to expecting half of workers to opt out of pension payments, while in other companies the opt-out rate was significantly lower.
Asked about the effect of ending contracting-out - whereby employers and employees pay lower national insurance rates as the occupational scheme serves as replacement for the state second pension - he said he was uncertain if this would lead to further defined benefit (DB) scheme closures, with members shifted to defined contribution arrangements.
"There is an increasing trend to making that change, but there are plenty of companies that are hanging on," he said.
However, Woods conceded changing a DB scheme in an effort to offset the rise in cost from ending contracting-out would continue to prove difficult, as there was no single "fair" method.
"You can't make a simple adjustment to the accrual rate, for example, which will leave everybody in the same place they were before because a state benefit is very different from a scheme benefit," he said.