From Ian Forder, Thinking Pensions - 21 June 2006

Scunnered* with Pensions

It is easy for us within the pensions industry to imagine that retirement provision for employees is at the forefront of most employers’ minds and that they, like us, leap off their chairs with enthusiasm when a new report or paper on the subject is published.

However, despite the huge simplifications brought into effect from 6 April this year (Yes, I am being ironic), pensions as far as many employers are concerned is associated with financial black holes, administration problems and ‘stuff I don’t really understand’. Unless of course you are talking about their own pension in which case they are very interested.

Publication of the White Paper ‘Security in Retirement: towards a better pensions system’ resulted in a flurry of media comment but the key messages for companies will have been ‘compulsory contributions’ and ‘automatic enrolment’. Not exactly the most positive messages for Finance Directors trying to keep costs under control, and don’t do anything to solve the problems of their existing pension scheme.

If an employer has to contribute to an employee’s pension, why choose anything other than the simplest and cheapest?  If you already offer a ‘better or equivalent’ scheme with higher contributions and charges, the introduction of ‘rolling auto-enrolment’ is going to mean a big increase in payroll costs as take up increases. Is there a cheaper alternative? Yes there will be.

In short, employers are scunnered with pensions and will be looking for an easy way out and a simpler future. And by simpler they don’t mean the ‘ post A-day pensions regime’!

The proposed ‘national scheme of personal accounts’ is not expected to come into force until April 2012. This is more than five years away but its influence on pension planning starts now. Unlike previous changes – contracting out, personal pensions, stakeholder pensions – which have generally led to an increase in the total market for private pensions, introduction of the new national scheme could well lead to a massive shrinkage of the private sector as we know it as contributions are diverted into the new ‘super scheme’ or schemes and existing arrangements are closed.

Of course, lots of details have still to be confirmed and no doubt we will go through the usual rounds of drafts, consultation and redrafts but there seems to be a general consensus that this legislation will go through.  You need to be thinking about the threats and opportunities for your business now.

To discuss how thinkingpensions can help your organisation think through the implications of the White Paper contact me on 0131 447 3137 or e-mail  thinkingpensions@gmail.com.

*scunnered – turned off by. From the middle English skunner, to shrink back in disgust.OED

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