Personal accounts predicted to create “pension apartheid”
UK - Actuaries are warning the introduction of personal account pensions could lead to a "pension apartheid" as employers intend to level-down contributions and close workplace schemes.
Research conducted by the Association of Consulting Actuaries (ACA) reveals 68% of employers with pension funds think the arrival of personal accounts will lead to a levelling-down of employer pension contributions because they will struggle to manage the costs of schemes if all employees are given access to a scheme, particularly among smaller firms.
At the same time, three-quarters (76%) said the introduction of pension reforms - which will require employers to provide auto-enrolment into either an existing pension scheme or personal accounts - will also lead to an increase in the number of workplace pension scheme closures, according to the ACA.
"The survey findings suggest entry into good occupational schemes looks set to be restricted in the future. A pension apartheid may develop with close to a third of employers saying they are likely to restrict occupational scheme as a result of the proposed reforms," the ACA stated.
Over one-third (36%) of smaller firms - with fewer than 250 employees - said auto-enrolment will force them to consider abandoning their existing pension schemes in favour of personal accounts while an equal number will look at reducing benefits to mitigated the increased costs pension reforms are likely to generate.
That said, 54% of all schemes said they intend to auto-enrol all employees while 31% of smaller employers said they would auto-enrol all staff and 42% are likely to restrict auto-enrolment into the company scheme.
Findings of the study, looking at the impact of proposed pension reforms and other issues affecting scheme offerings, were gathered through a survey of 330 employers whose pension schemes have over two million members and collective assets of £127bn (€186.7bn).
Additional results of the study suggest reduced regulation and increased simplification are still the key factors employers would like to see among the UK government's pension policy priorities, noted Ian Farr, chairman of the ACA.
"The survey results underscore the dangers of the law of unintended consequences," said Farr.
"All too often over the last 20 years, well-intended legislation has led onto damaging consequences for good existing pension provision. Whilst the idea behind personal accounts is laudable - extending pension coverage to more employees - it is clear from these findings that many may lose out unless great care is taken," he added.