UK - Government plans to give new staff automatic membership of their company pension scheme could prompt a spate of closures, experts warn.
Consultants say the measure – a reversal of current practice with employees automatically becoming members unless they opt out in writing – could be too costly for many schemes.
Mercer Human Resource Consulting worldwide partner Peter Thompson (pictured) said the move – touted in Alan Pickering’s Simplification Report – would encourage greater retirement savings for employees, but sponsoring employers would struggle.
He said: “Many firms might get scared off by the increased costs brought about by a greater take-up in the scheme, which is something we certainly do not need.”
Society of Pension Consultants president Donald Duval agreed. He said:
“This uses inertia to get more people into schemes, which is positive. However, there is a risk companies will say: ‘This is too expensive for us. We will not offer the scheme any more’.”
He added: “What is required is greater incentives for company pension provision rather than greater regulation about how the scheme is run and added costs.”
Hymans Robertson head of actuarial practice Ross Russell said the proposal could prompt employers to cut benefits, such as contributions to defined contribution schemes.
He also questioned whether the move could go ahead in tandem with current employment law, which does not allow a company to deduct money from employees without their consent.
The Confederation of British Industry welcomed the government’s move. Director of human resources policy Susan Anderson said:
“There is a lot of evidence that automatic enrolment works – take-up rates of around 90% are not uncommon – which is why an increasing number of employers are moving in that direction.”
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