The survey found that 81% of employers in Britain are concerned at the level of pension spending they are incurring, with 37% saying they are ‘very concerned’.
“This was also apparent where employers still sponsor open defined benefit schemes – where employer contributions often exceed 15% of earnings – and across a swathe of smaller employers, where current contributions into money purchase type schemes are often around 3% of earnings or less,” the ACA said.
The survey was conducted by the ACA in the summer of 2015 and was circulated to UK employers of all sizes, selected on a random basis. Responses were received from 477 employers sponsoring over 620 pension schemes.
Pension spend target
Many employers in the survey said they did not have a target for spending on pensions, particularly smaller employers many of which have yet to auto-enrol employees into pensions for the first time. Of the remainder, 43% were looking to a target of 6% or less of payroll to be spent on pensions.
However, the survey also found that the string of reductions in tax relief for pension savings in recent years has caused schemes to haemorrhage members on higher incomes.
The survey found 31% of employers felt that the reduction in tax relief and increasing complexities of the pension tax regime had caused employees on higher incomes to leave their schemes.
Care needed
ACA chairman David Fairs said: “”We have been very supportive of the government’s ‘freedom and choice’ reforms, but we do feel that to the government should ensure that any further reforms to pension taxation are workable and that they work supportively alongside the auto-enrolment policy, which itself needs to be carefully monitored as it impacts on small firms.
“This report points out there needs to be a great deal of care taken before further pension tax changes are made – any reform must genuinely simplify the regime for both employers and employees and, above all, must genuinely incentivise pension saving as opposed to simply raising tax revenues.”
Fairs said the April 2016 demise of defined benefit scheme contracting-out is also likely to increase the pace of scheme closures to future accrual in the private sector, with many employers postponing the rationalisation of their schemes because of issues like the uncertainty over what the policy on tax relief will be going forward.
Recommendations
Overall the ACA said it was calling for:
– The government to establish a standing Independent Retirement Income Commission charged with promoting the active extension and betterment of private retirement income provision and making recommendations on the future of State and public sector retirement provision.
– Employers to be given tax breaks to incentivise the provision of savings and retirement advice.
– For formal regulated financial advice to be provided via the workplace to be funded through tax concessions granted to the employer.
On its final point, the ACA said regulated financial advice should be made available to employees from the age of 50, and that a sum of about £500 should be made available. A second session, valued at around £800, should be provided at the point of retirement, with this funding coming through adjustments to the employer’s tax liability.
