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Home > Pensions > Personal Pensions

By Julia Bradshaw | Published May 09, 2012

Pension specialist raises doubts on contributions

Mr McPhail, head of pensions research for Bristol-based Hargreaves Lansdown, made the comments in response to a report on auto-enrolment awareness issued by Aviva earlier in May.

He said: “You would not necessarily expect employee awareness to be particularly high at this stage. The key test will be whether the pensions industry can rise to the challenge and deliver good workplace communication to employees.

“However, regulatory restrictions means it’s a great deal harder for pension providers to communicate with members than should be the case. Without this the whole project is likely to fall flat on its face.”

According to figures from the department for work and pensions, 31 per cent of employers will absorb the cost of auto-enrolment, 18 per cent will recoup the cost through lower wage increases, 16 per cent will restructure their workforce and 15 per cent will increase prices.

Mr McPhail called it “wildly optimistic” in today’s financial climate to assume that employers who currently pay more than a 3 per cent contribution will maintain or increase their contributions when auto-enrolment is rolled out in October. He said instead there will be levelling down.

He said: “From the employers I have spoken to, some will undoubtedly level down their contributions and many will introduce a two-tier pension system with lower contributions for the new members, or for new employees or for lower-grade employees.”

Mr McPhail said the only way to deal with auto-enrolment was to plan ahead in terms of cost.

He added: “Auto-enrolment is just the start. We’re going to need to spend the next 20 years ratcheting up the contribution rates. An 8 per cent contribution will do little more than lift members out of welfare.”

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