UK - Auto-enrolment could cause over half of UK pension plans to lower the amount of benefits paid to members, a survey has revealed.

Data from Capita Hartshead's 17th Annual Pensions Administration Survey also showed that more than two-thirds of all private sector defined benefit (DB) schemes were now closed to new entrants, with 86% of those remaining expecting to close to everything but new accrual in the next 12 months.

The findings also warned of the distinct possibility that pension funds may begin leveling down in the wake of the introduction of the National Employment Savings Trust's (NEST) and auto-enrolment, claimed Capita Hartshead.

"The reality has hit home that auto-enrolment is going to mean increased costs," said Andrew Short, technical manager at the company. He cited the fact that most legislation pertaining to the timeframe for auto-enrolment was only finalised during the last few weeks of the previous Labour Government as a reason for this.

According to the survey, 51% of schemes are now likely to revise their benefit structure in an effort to hold down costs, with one in ten schemes considering closure and enrolling all company employees into NEST instead.

Not all schemes were shying away from auto-enrolment, with 16% of them still expecting to start auto-enrolment during the soft launch period for NEST in 2012. However, the figure was down from 27% during 2009's survey.

"We've got to recognise that the actual physical cost for employers is not immaterial," said Paul Sturgess, director of DC policy and product development. For some pension funds it could mean doubling their membership, which is a "straightforward financial burden," according to Sturgess.

Around 70% of respondents also said they had started to improve the quality of their data, with two-thirds of schemes saying they would check the quality of their data at least once a year.

This comes after a survey by the Pensions Regulator (TPR) earlier this year revealed that only 19% of schemes hold the required fundamental data about all members. TPR has since warned trustees to improve the quality of all data. (See earlier IPE story: TPR cracks down on poor pension admin)
The National Association of Pension Fund's (NAPF) proposal for a quality mark for DC schemes is also starting to gather interest. While last year 62% of respondents were not aware of the proposal, this year only 4% were unfamiliar with the idea and almost 20% were considering applying for the quality mark for their scheme.

Recently, both the Volkswagen Group's UK pension scheme and the Daily Mail & General Trust scheme were awarded the mark. (See earlier IPE story: Six UK DC schemes hit pension quality mark).

Capita's survey also found that despite auto-enrolment, almost 25% of workers would continue to opt out of joining pensions despite being re-enrolled every three years. The figure rises to 40% of employees when the scheme in question is a DC scheme.