Employers want AE increase and support for growth while funding DB
Pardon the Interruption
This article is just an example of the content available to mallowstreet members.
On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.
All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.
Three-quarters of employers believe minimum auto-enrolment contributions should go higher but would prefer any hike to be delayed, and DB employers are calling for government to support growth and reduce the regulatory burden.
Three-quarters of the senior executives at 221 employers who responded to the latest Pensions Survey by the Confederation of British Industry and consultancy Mercer said minimum contribution rates will need to increase from the current 8% to ensure pensions are adequate.
However, many more would like to see this happen over a five-year period (78%) rather than the next two years, although this still garnered the support of almost half (47%).
More than 9 in 10 (92%) have kept their pension contributions unchanged during the pandemic, and slightly fewer but still a vast majority (86%) continue to see a strong business case for providing competitive workplace pensions, with the same proportion believing that they have a moral obligation to help staff to save for retirement.
Matthew Percival, director of skills and inclusion at the CBI, said employers are eager to build on the success of auto-enrolment and know that higher business contributions will be needed in future.
“But with firms only beginning to recover from the pandemic, and while they’re prioritising investing in more immediate pay and conditions to address labour shortages and rising living costs, any increase must take place over the next five years rather than in the short erm,” he said.
DB employers want support
Costs were a theme particularly among those with defined benefit schemes. Of these, 65% said that over the next two years, the government should prioritise supporting them to grow their business as they work to meet pension scheme obligations, for example, by minimising the cumulative regulatory burden.
“Firms with defined benefit schemes are grappling with the administrative burden of new regulations. They face an uphill battle to maintain their pension schemes while also investing in company growth,” said Percival.
“Employers need clarity from government and the Pensions Regulator about their responsibilities so that they can continue to protect member benefits whilst growing their business," he said.
Will climate disclosures bring employers and DB trustees together?
The survey also took the temperature of employers on the recently introduced climate risk disclosure requirements for schemes. Just under half (47%) think that disclosures will be a useful way to engage employees with their future savings, and 57% expect it to improve communication between DB trustees and employers, but understanding remains low.
A significant minority of those with DB schemes (29%) are also worried that the introduction of climate reporting and disclosures will lead to divestment that could put future returns by the pension scheme at risk.
However, both those with a DC scheme (41%) and businesses with a DB scheme (62%) predict that the cost of publishing compliant TCFD-aligned disclosures will be greater than the government’s estimate of £15,000.
Tess Page, a partner and trustee leader at Mercer, said aspirations for incorporating ESG more substantially into pension scheme management are high, but the pace of change has been slow: “Many schemes are unsure where to start, but fortunately relatively small steps can make a difference, including simple assessments to consider what actions will deliver most impact.”
Do employers need more support to meet pension obligations, eg through a lighter regulations?