Is it time to review staff pensions?

Small companies are reviewing the pension schemes they offer workers in the light of the reforms proposed by the Pensions Commission.

According to research by the Association of Consulting Actuaries, more than half (58%) of small companies have already reviewed their current arrangements within the past 12 months and a further 23% are planning to do so in the coming year.

The research also suggest 16% of companies will revise their existing pension schemes to cope with the cost of having more employees join should the government’s plans for a National Pensions Saving Scheme go ahead, with a further 9% saying they would probably close down their scheme altogether.

The statistics will cause concern that the gulf between the pension provisions offered to employees of small and large companies is growing, meaning smaller operations will struggle even more to recruit top members of staff.

Many small firms expressed concern over the proposed new system, with two-thirds saying they thought it was overly complex and too reliant on means-testing. But 88% were in favour of a consolidated pension scheme that would combine the basic state pension and the earnings-related state second pension.

“The survey results underscore that businesses and their employees need to see a simple state pension scheme in place upon which to build any second-tier private pension,” said Ian Far, chairman of ACA.

“We welcome the commitment in the recent pensions white paper to raise the state pension in line with earnings financed in part by raising the state pension age to reflect improvements in longevity,” he added.

“But, for simplicity’s sake, a further look is needed at removing the second state pension at greater speed and at ways to reduce means-testing to a much lower level than proposed.”

The research revealed that the average contribution to pensions by small firms was 18% of earnings, with total contributions including employee payments standing at 24%. Combined employer and employee contributions into stakeholder pensions, which are becoming more popular among small firms, are much lower at between 6% and 10%.

The survey also showed that 74% of defined benefit schemes in the small firms sector are now closed to new entrants.