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| Smaller schemes to review pensions following exemption test |
| Smaller
firms in the UK are likely to review their pension scheme offerings
following the introduction of the Personal Accounts Exemption Test,
according to the Association of Consulting Actuaries (ACA). The ACA conducted a survey, the 2008 ACA Smaller firms survey Report 1, of 394 firms with 250 or fewer employees, and found that 55 per cent of responding firms think the schemes they presently run would fail the exemption test set in the current Pensions Bill. Around 9.6 million people are employed in the UK’s 1.2 million smaller firms, and over one million employ only four or fewer staff. 80 per cent of these firms, according to the DWP, do not currently offer a workplace pension scheme, and are therefore one of the target areas for personal accounts and auto-enrolment come their introduction in 2012. Keith Barton, chairman of the ACA, commented: “Our latest survey in the sector points to the huge challenges there are in achieving wider pension coverage in smaller firms. Yes, it is very clear that there is a huge under-pensioning of millions of employees, but our survey suggests the benchmark set by the Government may weigh very heavily on smaller firms, particularly if economic conditions are not good at the time auto-enrolment and personal accounts are launched.” 60 per cent of respondents said their pension schemes do not match up to the required minimum contribution rate as set out in the exemption test of eight per cent. However, life and pensions firm Standard Life says that it is the complexity of the exemption test that means schemes are failing it, not that they are any less generous than others, since the test uses banded earnings, ands bonus and overtime are also taken into account. Opt outs are expected to be high amongst smaller firms, with respondents expecting levels by individual employees in excess of 40 per cent. 31 per cent of firms are expected to either level-down or opt for personal accounts and close their existing scheme, and the survey also found that over 90 per cent of defined benefit schemes in respondents’ firms had been closed to new entrants, and half had been closed to future accruals. “ACA’s excellent report confirms once again the potential toxic effect of personal accounts on existing pensions,” said John Lawson, head of pensions policy at Standard Life. “The key problem is the exemption test; not the generosity of employers. The government needs to simplify this test so that generous schemes can continue to contribute eight per cent or more of basic pay.” The Survey can be found here - Pensions Age September 2008 |