Nearly a third of small company businessmen expect to downgrade their existing pension schemes when the Government introduces personal accounts in 2012, according to a survey by the Association of Consulting Acturies published last week.
Personal accounts are the government’s remedy for the estimated 10 million individuals who are failing to save for retirement. The Government-sponsored scheme will involve anyone who works for an employer being automatically enrolled into a personal account or into the company pension scheme if this matches, or is superior to, personal accounts.
Personal accounts will involve workers paying 4 per cent of their wages into the scheme, employers 3 per cent and the Government 1 per cent in the form of tax relief, making the total contribution per worker 8 per cent.
Although employees will be automatically enrolled into personal accounts, anyone who doesn’t want to be in the scheme can choose to opt out, but workers will have to make a deliberate decision to remove themselves from the scheme, rather than not joining it (which is the case at the moment).
About 31 per cent of businesses employing up to 250 staff have said they will either reduce their scheme benefits following the launch of personal accounts or ditch their existing scheme altogether in favour of personal accounts because they will be cheaper.
This would be a disaster for pension provision as, according to the National Association of Pension Funds, the average employer contribution to defined contribution (money purchase) schemes is currently 6.4 per cent and for defined benefit schemes (final salary), 15 per cent.
But employers fear the cost of maintaining their existing arrangements will soar if most of their employees decide to join. Currently, employers benefit from the fact that 51.5 per cent of the workers don’t join company pensions schemes for various reasons, such as ineligibility or not wanting to pay the monthly contributions.
To date, workers have only gone on strike over the reduction or loss of final salary benefits.
It will be interesting to see whether workers will strike over the loss of defined contribution benefits come 2012, if employers carry out their threat to switch to personal accounts.
Check out how much your pension fund will buy you in the form of an annuity:
http://www.defaqto.com/consumer/pensions.aspx
Confused about pensions? Read our guide to company schemes:
http://www.defaqto.com/consumer/pensions/company-pensions.aspx
Want to know more about personal pensions?
http://www.defaqto.com/consumer/pensions/personal-pensions.aspx
Comments
Trackbacks