The new scheme will change the employee benefits landscape, but as Peter Barnett points out, there will be winners and losers
Facing the challenges
But attitudes to employee benefits may be changing.
Early last year, research by PricewaterhouseCoopers showed that 80% of employees would value a free iPod or digital camera from their boss more than being fast-tracked for promotion. It commented: “With bonus pools shrinking and many workers’ wages frozen, employers need to find lower-cost, tailored ways of showing their staff that good performance is always appreciated.”
And the runes don’t read well if last year’s Capita Hartshead pension scheme administration survey is anything to go by. It found that more than half of employers (51%) will review their schemes prior to auto-enrolment and NEST in 2012, with many looking to the contribution structure of NEST as a standard to follow.
In an effort to head off such an outcome, pensions minister Steve Webb, via IFAonline, offered reassurances that auto-enrolment and NEST would not lead businesses to dumb down their pension schemes by announcing that the earnings trigger for auto-enrolment into workplace pension schemes would be in line with the PAYE threshold, which will be £7,475 p.a. this April.
He also said there will be no exemption from auto-enrolment for micro-businesses, feeling this would calm fears that the scheme will encourage businesses with existing pension schemes to reduce benefits for members.
Webb added: “Levelling down will be limited and easing the certification of acceptable occupational pension schemes will prevent this. Fewer than 10% of employers will level down.”
However, research from the Association of Consulting Actuaries in summer 2010 showed that among larger firms, four out of ten may level down benefits. In smaller firms, where ‘quality’ schemes are run, three out of ten are likely to follow suit. Even if 10% of employers level down, this is not an outcome to be welcomed.
Recent history also implies that employers, where pensions are concerned, won’t necessarily act altruistically. The recent drive into Defined Contribution schemes, with many Defined Benefit schemes closing, cannot be argued as being beneficial to either the employee or the pensioner, who now hold all the risks.
Yet such changes were a perfectly legitimate employer response to a demand for a more efficient use of shareholder funds and there is no reason why financial directors, having become used to seeing pension fund liquidity management as part of their daily grind, will in this instance act more philanthropically and take a long-term view. Why should they?
They will not, unless the potential for this downside is highlighted now. There is no point just waiting around and wringing our hands while NEST and the DWP set the pensions landscape for a generation to come.
The die here still has not been cast completely. If we want good things to happen and don’t want other undesirable eventualities to transpire, then we have to make the case and make our voices heard.
As this Bill passes onto the statute book, now is a very good time to do just that. For if we fluff our lines, we all run the risk of being cast as the pantomime villain.
Peter Barnett is a policy adviser in the House of Lords, an Advisory Board member of the Society of Later Life Advisers, and Chair of the Continuing Care Conference
