1 - Auto-enrolment and Personal Accounts
At the time of writing, gradually from 2012 most employees earning between around £5,000 and £33,500 per annum (to be updated from these 2006/7 levels to probably between around £6,000 to £44,000) will be automatically enrolled into either the National Employment Savings Trust (NEST) scheme or an employer-sponsored 'qualifying' pension scheme that is equivalent or better. The intention is for employees to eventually contribute after phasing a minimum of 4 per cent of band earnings to NEST or a 'qualifying scheme', matched by a minimum 3 per cent employer contribution and 1 per cent tax relief.
Employees will have the right to opt out of both NEST and qualifying schemes and the regime will be phased in over a five year period.
2 - Levelling down threat soars as sponsors and schemes wake up to possible cost increases
Ahead of 2012, some 16 per cent of schemes are likely to decide to auto-enrol all employees into their existing qualifying company schemes - a sharp reduction of 27 points on a year ago (see Table 38).
Table 38: All schemes: are you likely to decide to auto-enrol all employees into your company scheme(s) ahead of 2012
Given more employees may be autoenrolled in your company scheme in 2012, are you likely to review your pension arrangements and revise the benefits offered under your company scheme?
Might you close your company scheme(s) and opt to put some or all employees into NEST from 2012?
As auto-enrolment is likely to add to scheme costs with more employees participating in existing qualifying schemes, 51 per cent of schemes (up 17 points on a year ago) now say they are likely to revise current scheme benefits to hold down costs.
Come 2012, 22 per cent of defined contribution schemes say they may opt some employees into NEST rather than auto-enrol into their company scheme, and 10 per cent say they may close their existing arrangements entirely.
Close to half the schemes felt NEST and the implementation of employer duties would have no effect on them. However, particularly among defined contribution schemes, three-quarters recognise that their costs will increase as the number of scheme members rises in the wake of auto-enrolment.
Rightly or wrongly, only just over half of the defined contribution schemes felt the benefits presently offered by their schemes are superior to NEST, allowing them to pass the qualifying test (see Table 39).
Table 39: all schemes: how do you think the implementation of the employer duties and NEST will affect your existing pension scheme?
Currently, does your company pension scheme(s) meet the qualifying test and provide better benefits than NEST?
The published regulations provide for a maximum one month window to effect automatic enrolment. Do you think this is a realistic timescale to provide employees with the enrolment information and to achieve active membership?
Based on experience, once auto-enrolment is in place, how many employees (as a percentage of your workforce) do you estimate would then opt out of either your qualifying scheme or NEST?
Three-quarters of schemes said the one month window to effect automatic enrolment into schemes under the then published draft regulations was unrealistic.
3 - Opt out estimates of 40 per cent from defined contribution schemes
Schemes expect 25 per cent of employees to opt out from NEST or qualifying schemes, with this rising to 40 per cent where the qualifying scheme offered is a defined contribution arrangement. In reality, the eventual level of opt outs is likely to be driven by the economic conditions at the time of launch and the effectiveness of the marketing campaign in the run up to 2012 and beyond.