NAPF: Finance directors pivotal to workplace pensions as defined benefit provision stabilises

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Tuesday, 29, Jan 2008 12:00

NAPF Annual Pensions Survey also includes -

Employer Contribution Rates, Impact of the 2012 Pension Reforms and Trends in Defined Contribution Schemes

The latest National Association of Pension Funds (NAPF) annual survey1 showed that workplace pension provision is finding a new equilibrium after many years of change. Around a third of private sector defined benefit schemes remain open to new members, much the same as in 2006 (31% in 2007, 33% in 2006).

Over the next five years 40% of private sector respondents with open Defined Benefit (DB) schemes expect no changes to be made to pension arrangements. 22% expect to modify their schemes while retaining at least some DB elements, 15% expect new employees to be offered pure Defined Contribution (DC) money purchase pensions (defined contribution) and 22% felt unable to answer.

NAPF Chief Executive, Joanne Segars, said: “However, while the overall picture shows stability in the pensions landscape, the operating environment will be radically changed in the years ahead. While Finance Directors are already pivotal to the world of workplace pensions, much of this change, led by the 2012 pension reforms, will only add to their importance whether they are a trustee or not.

“With three in every four schemes believing they will be affected, the impact of the pension reforms should not be underestimated by Finance Directors especially in the field of auto-enrolment.

“It is important that as part of these reforms there is some give and that is why the NAPF has been pushing the Government for deregulation to help Finance Directors keep any additional costs to a minimum.

Finance Directors as Trustees

The survey revealed that Finance Directors are also trustees of 30% of workplace pension schemes (see Appendix 1), the biggest director presence from an employer’s board. Finance Directors, as with all Executive Directors, tended to be trustees of smaller schemes (Finance Directors are trustees of 39% of schemes under £100m) rather than of larger schemes (25% of schemes over £750 million respectively).

Yet 20% of schemes had employer-nominated trustee vacancies, with the increase in trustee workloads most frequently cited as the reason stopping people from stepping forward to become trustees.

The survey’s other key findings of relevance to the Finance Director community include analysis of the growing DC pensions landscape:-

Underestimating the 2012 Pension Reforms

The survey shows that 75% of schemes believe they will be affected by the 2012 pension reforms (which include the introduction of Personal Accounts) and they will have to make some changes to their schemes to comply with the new rules, for example, auto-enrolment.

Only 40% of private sector respondents expect that they will have to auto-enrol some existing employees and 59% expect to have to auto-enrol existing employees. This indicates that the finer details of the reforms may not be widely understood amongst the people who will have to implement them. In practice, it is only schemes with 100% take-up amongst employees in the relevant age and income bands who will not have to auto-enrol any existing or new employees.

Employer Contribution Rates to Defined Contribution (DC) pensions

The survey shows that employers operating DC (money purchase) schemes are, on average, contributing 7% of pensionable pay - more than double the 3% required by the new Personal Accounts system due to be introduced in 2012. In addition, 9% contributed 10% or more.

Shift from Trust-based DC schemes to Group Personal Pension Plans and Stakeholder Pensions

Since 2005, there has been a clear shift in the type of DC schemes offered by employers. In 2005, 89% of schemes surveyed (175 responses) stated they offered a trust-based occupational DC scheme but now only 56% of schemes surveyed do so (207), a fall of one third (See Appendix 2).

ENDS

1 The 33rd National Association of Pension Funds’ Annual Survey of UK Pension Funds can be purchased via www.napf.co.uk

The survey received responses from 369 NAPF fund members, though not all responded to every question. Fieldwork commenced on 20 August 2007 and closed on 28 September 2007. Nearly all respondents operate defined benefit schemes. Most also operate defined contribution schemes.

Assets in respondents’ defined benefit schemes nearly £500 billion (£481 billion). Assets in defined contribution schemes total £7.2 billion.

2 Populus interviewed a random sample of 1,012 adults aged 18+ by telephone between 16 May and 17 May 2007. Interviews were conducted across the country and the results have been weighted to be representative of all adults. Populus is a member of the British Polling Council and abides by its rules.

About The National Association of Pension Funds

The NAPF is the leading voice of workplace pension provision in the UK. Some 10 million working people are currently in NAPF Member schemes, while around 5 million pensioners are receiving valuable retirement income from such schemes. NAPF Member schemes hold assets of around £800bn, and account for approximately one fifth of investment in the UK stock market.

Journalists requiring more information should contact Mark Brooks:-

020 7808 1312 mark.brooks@napf.co.uk 07917 506683