Personal Account pensions may tempt employers to reduce contributions

by Gill Montia

Story link: Personal Account pensions may tempt employers to reduce contributions

The Government’s plans to bolster pension savings with the introduction of Personal Accounts have not won the hearts and minds of Independent Financial Advisers (IFAs).

In a poll by Scottish Life, 87% of advisers questioned believe the introduction of personal accounts will lead to employers levelling down contributions.

That is to say employers who have previously been paying more than 3% into pension schemes will reduce contributions in order to align with the new system.

One respondent comments: “There will always be a central core of employers that for any number of reasons are willing to pay for quality pension arrangements but a great many of them will see this as an opportunity to reduce their expenditure.”

Steve Bee, head of pensions strategy at Scottish Life, says: “It’s clearly not a black-and-white issue and whether or not levelling-down happens as a result of these reforms may depend, at least in part, on how employers and their advisers react to events.”

Only 13% of respondent believe that many large companies encourage pension saving and will therefore not reduce contributions.

Personal accounts are due to be introduced in 2012 and under the current proposals, employers will pay contributions of 3% on employees’ earnings of between £5,000 and £33,500 per annum.