New report shows declining support for Government’s planned pension reform

New research has highlighted declining support among both employers and employees for the government's pension reform plans, including personal accounts, due to be phased in from 2012

19 April 2010

Posted in Financial results

AXA's latest 'Workplace Pensions' report1 directly compares views on employee benefits issues in the UK workplace between now and 2006, when AXA explored reactions to the then recently released white paper on pension reform2.

The new report highlights that:

  • Support among employers for the pension reform plans has halved to 26% from 52% in 2006. Support is lowest among smaller firms
  • There has been a 7 point fall in companies saying they will be able to ‘absorb the costs and comply’
  • One-fifth (19%) of employers now say they will reduce employee numbers as a result. This is 3 points higher than in 2006
  • Positively, however, fewer companies today would use the NEST scheme as an excuse to cut pension contributions. One-fifth (21%) of employers say they would 'level down' pension contributions to 3% of salary - 5 points lower than in 2006

The report has noted that support for the new pension system grew in relation to the number of employees. Only a fifth (19%) of employers with up to 50 employees expressed support for the new system compared to a quarter (26%) of those with 50 to 249 employees and 38% of those with 250+ employees.

There also appears to be widespread concern that employers, notably smaller firms whom the implementation of NEST will affect the most, have not received sufficient information. Even among larger firms the research reveals that under half of all those interviewed (47%) felt adequately aware of the reforms.

From the employee perspective, the report showed a reduction in the number of employees who would consider taking their contribution level above the 4% set out in the NEST scheme. Further matched contributions is the single biggest measure that would encourage employees to raise their contributions followed by a better awareness of what they may receive in retirement.

When employees were asked whether they would prefer to have a payment made into their pension or a short-term pay increase, one in four (25%) said they would favour the pay increase, which would be worth significantly less than the pension option over time.

Steve Folkard, head of pensions and savings policy, AXA Life, said, “We expected that support would have grown for the pension reform proposals, but our new findings do not make good reading for policy makers.

“Support from employers has plummeted since 2006 and many are still contemplating levelling down or reducing head count to manage a higher cost base. Dignity in retirement is a genuine issue and we are concerned as to what level of benefit will be provided - particularly in the early years of the scheme before the full contribution levels are reached. The successful implementation of NEST will require much better engagement with employers and employees with more effective information and support programmes.

Successful reform of the pension system must be a key objective of the incoming government. We would urge policy makers to take heed of these findings and to work with the pensions industry early in the new parliament to develop a strong taskforce approach to ensure successful delivery of pensions reform and the implementation of NEST.”

1 Research carried out in the fourth quarter of 2009 among 300 directors responsible for employee benefits, and 1,038 people who were either in full or part-time employment.

2 Research carried out in the second quarter of 2006 among 300 directors responsible for employee benefits, and 1,357 people who were either in full or part-time employment.