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Majority of smaller firms don’t offer a pension

Majority of smaller firms don’t offer a pension

Category: Pensions

Updated: 04/01/2011
First Published: 04/01/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The UK's pension problems continue to mount, as two thirds of smaller companies do not offer a scheme, and contributions remain too low.

From 2016, all firms will have to offer their employees a pension scheme under the new 'auto enrolment' Government initiative, but research by the Association of Consulting Actuaries (ACA) has found that two thirds of smaller firms do not currently run a scheme.

Almost all of the smaller firms without a scheme said that cost was the main reason they did not provide a pension scheme at present.

But by October 2017, firms will be obliged to contribute 4% of an employee's salary to a pension scheme, with total contributions equivalent to at least 8% of earnings.

The remaining 4% will be made of 3% from the employee and 1% by way of tax relief.

There is an expectation amongst over a third (35%) of firms that employees will opt out of the scheme when it is introduced.

Firms said that employees did not join schemes mainly because of cost (84%) with two thirds also not joining as they felt disillusioned with pensions.

The figures also show that most pension schemes run by smaller companies are attracting combined contributions of less than 8% of earnings, with little evidence that these are keeping pace with the increasing cost of building a sufficient pension as life expectancies continue to rise.

"Our survey has found that savings by both employers and employees into defined contribution schemes generally have failed to keep pace with the cost of building a sufficient pension," commented Stuart Southall, ACA chairman.

"Pension contributions into most schemes reporting to this survey need to double on average to at least 15% of earnings if reasonable retirement incomes are to be achieved.

"Whilst understandable, it is concerning that the minimum levels of contribution under the auto enrolment policy are very modest."

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