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NAPF says auto-enrolment costly

UK – Auto-enrolment is effective but it is a ‘minority sport’, according to findings by the National Association of Pension Funds.

According to the NAPF’s ‘Quantity v Quantity – auto-enrolment and levelling down: the evidence’, less than one third of the NAPF’s private sector members currently use auto-enrolment, and a Department for Work and Pensions survey claims that just 4% of companies with pension schemes use auto-enrolment.

The research report has warned against complacency regarding the risk of employers levelling down existing pension provision when required to enrol staff into a scheme automatically from 2012.

The findings come as the NAPF is trying to make its points about the design of the proposed national pension scheme.

It has collated evidence from a number of sources concerning the impact of auto-enrolment and how employers may respond to its introduction. It also outlines how some NAPF members say auto-enrolment would affect them and how they would react.

According to NAPF policy director Joanne Segars, "Auto-enrolment is a proven way to boost take up of workplace pensions, increasing take up by as much as 50% in some cases.

“But we have to be aware of the additional costs employers currently offering good quality workplace pensions will face when they are also required to use auto-enrolment and how they may respond.”

According to other key findings in the report, where companies use auto-enrolment voluntarily, it has been effective in increasing scheme take-up by at least 20%, and in some as much as 50%.

The NAPF also warned that employers which already offer good quality pensions but do not use auto-enrolment could have to auto-enrol one employee for every two already in their schemes from 2012.

“Unless they are prepared to accept these higher costs, there is a danger that will choose to spread the same amount of money more thinly by providing less valuable pensions to a larger number of employees,” said a statement.

Furthermore, the report states that levelling down could leave the average earner around £5,000 a year worse off.

According to Segars, “These pensions reforms must not result in a situation where there are more pension savers, but less pensions saving. And it must not damage existing good quality pension schemes.

“There is no room for complacency about the dangers of levelling down. Government should consider a package of measures to reduce the risk of levelling down by companies which currently provide good schemes,” she said.

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