Employers should get choice on auto-enrolment

Employers should be given the opportunity to opt-out of auto-enrolment if their current scheme has membership take-up equal to personal accounts, says Legal & General.

In its response to the pensions white paper: ‘Personal accounts: a new way to save’, L&G says giving employers an alternative to auto-enrolment will help stop the 'levelling-down' of good existing pension provision.

The paper points out companies should be given the choice of either implementing auto-enrolment along the guidelines in the white paper, or they must confirm their scheme “meets or exceeds the level of membership take up” achieved by the new system of personal accounts.

However, it admits as this figure would be calculated and published on a periodic basis by the Personal Accounts Delivery Authority (PADA) and its successor the Personal Accounts Board (PAB), an element of phasing in will have to take place.

It points out PADA will probably only be able to announce the actual take up of personal accounts at the end of the first year of operation, so it suggests employers who have not yet reached that level should be given a year to improve the take-up of their scheme in order to meet the benchmark level.

L&G argues this approach would “embed good pension schemes into the fabric of employers” in a way auto-enrolment will not, with an added emphasis on communication to members.

Adrian Boulding, wealth policy director at L&G, points out if a pension scheme attains 50% membership through automatic enrolment, in reality the employer has attracted the half of the workforce which cares the least about taking the time to opt out.

However, he says if an employer achieves 50% membership by “promoting and communicating the valuable benefits” the pension scheme offers, then the employer has attracted the half of the workforce which places the greatest value on the employer’s pension contributions.

L&G warns if generous occupational pension schemes are to continue it is essential the staff should actually value employer’s contributions, otherwise economic forces will lead the employer to reduce pensions in favour of higher wages.

Boulding adds: “Requiring employers to meet the benchmark take up set by personal accounts has a key economic driver that will help to protect superior existing schemes.”

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