New legislation has added to the admin headache companies are suffering in trying to maintain their superannuation schemes. Ben Willmott looks at the problem and how HR professionals are responding to the changes
Employers are finding it increasingly difficult to provide good occupational pension schemes because of the growing burden of regulation and administration.
A major survey by the National Association of Pension Funds has revealed that most firms are concerned about the continuing uncertainty over the future of pension provision.
In all, 94 per cent of the 500 companies interviewed said the management and provision of occupational pension schemes demanded more company resources compared with five years ago. Furthermore, 90 per cent of respondents felt that providing and managing schemes would become more difficult and require even more resources over the next five years.
The reason? Red tape.
A total 64 per cent of firms blamed the deteriorating situation on increasing and more complex legislation. Alan Firth, managing director of Tameside Care Group, says his firm, which runs homes and care facilities for the elderly, was being hit hard by the welter of legislation.
He says that when his Cheshire-based company took over a number of former local authority homes in 1990 it also inherited the final salary pension scheme that was in place at the time.
“By 1997 we had to close that scheme because the costs were so great,” he says. “The early retirement and ill health benefits offered through the final salary scheme could not be afforded. We will have to introduce our own in-house money purchase scheme from October 2001 so we will have to administer two schemes.”
Firth believes that his firm will have to employ a part-time wages administrator to cope with the extra workload and estimates that the introduction of a new money purchase scheme will add between a quarter and a half per cent to the wage bill.
He says, “It is a massive headache and fairly costly. I support the ethics of providing a pension scheme but, from the point of view of having to run a business and to try to fund the costs, it is a problem.”
Continuing uncertainties over issues such as the Myners Review into Institutional Investment and the review of the Minimum Funding Requirement were said to be key concerns in causing a near freeze to benefit structures. Surprisingly, only 14 per cent of firms surveyed felt the introduction of stakeholder pensions would create difficulties for occupational schemes.
Gary Bundy, group pensions manager for MFI, said that a review of pension scheme had been started because of the changing pensions environment.
He says, “We have had a final salary pension at the company since 1972. We did have at one point four final salary schemes but we managed to merge them into one.”
Bundy said the company would be considering the merits of money purchase pension schemes and introducing a stakeholder pension scheme to run alongside the company pension scheme.
He adds, “In my experience the job is certainly bigger than it was and resources are being stretched more often.”
However, despite the difficulties faced by schemes, the survey reveals a willingness by employers to improve and broaden the range of benefits.
Mike Taylor, group divisional director of human resources and development for building services engineering company Lorne Stewart, which runs two final salary pension schemes, stresses the importance of offering a good quality scheme to employees.
Taylor says, “The type of people that we employ are far more aware than they used to be. There is a tremendous skills shortage in our type of industry and if you are not able to offer a very good pension scheme you will have a tremendous difficulty employing people in the first place.”
“It is becoming very time-consuming. Whereas 18 months ago I might have spent one to two days a month dealing with pensions, for the past three months it has been three days a week.”
One answer to the problem that employers are facing in trying to provide an attractive pension scheme in a complicated environment is to employ a specialist pensions manager.
Taylor says, “We are on the verge of taking on a pensions manager but we are trying to avoid it. We are giving more work to our actuaries but an actuary’s fees are equivalent to those in the legal profession.”
Employers hope the pensions system will be clarified. A CBI spokesman, for example, is calling on the Government to hold a review. The National Association of Pension Funds will also be seeking further meetings with ministers to see how these onerous burdens can be reduced.
David Cranston, the association’s director-general, says, “We are keen to support the Government’s objective of a shift from state to private pension provision and these continuing efforts can only help.
“But the survey shows that employers continue to offer their staff improvements to their occupational pension schemes, despite the continuing onslaught of regulation.”
Mark Thomas, policy adviser for the CBI, says, “Pension taxation is an area of increasing complexity. We believe that the Government needs to take a systematic look at it.
“There is a wide diversity of different pension products so some variation is inevitable, but a thorough review of the whole system is needed.”
Stakeholder pensions – the details
From October 2001 all employers will be obliged to offer membership of a stakeholder scheme to employees who are not eligible to join an occupational scheme or a group personal pension which meets new qualifying conditions.
The only charge allowable will be an annual management charge limited to 1 per cent. Registered stakeholder pensions will be available from April.
Personal pension schemes will have to comply with the minimum standards on charging and governance in order to be registered as a stakeholder scheme.
Stakeholder schemes require secure governance arrangements in the form of a board of trustees, including independent members or a secure stakeholder manager such as an insurance company.
The Green Paper on stakeholder pensions last year estimated that the new arrangements would cost the employer between £10-25 a year per employee to pass on voluntary contributions to a nominated stakeholder scheme.
It would cost firms between £20 and £1,000 to set up changes to clerical and payroll systems, depending on their complexity and the size of the employer and between £25 and £2,000 to nominate a stakeholder scheme and consult employees.