The FINANCIAL — Companies crave stability on tax, policy and funding to boost pensions according to the latest survey of business leaders by the CBI and Mercer. Almost eight out of ten respondents are against further changes in pension taxation, while the majority cited certainty as the Government’s top pension priority in this Parliament, as recent substantial reforms bed in.
The biennial survey also found costs of running defined benefit schemes still command board-level attention, with company chiefs keen to avoid increasing costs from future European policy changes. The percentage of respondents identifying the need to make auto-enrolment administration easier leaped to nearly 70% compared with just 41% in 2013. Two thirds also cited changing regulation adding to the compliance burden. And the vast majority indicated that increasing take-up levels among employees for existing schemes must be a priority, rather than raising minimum contributions.
More than 160 businesses responded to the survey, including FTSE 100 companies and SMEs, together employing more than 500,000 employees, with a combined market capitalisation of £237bn. The survey is unique as it collects data from both the boardroom and pensions’ experts in respondent companies.
Neil Carberry, CBI Director of Employment and Skills, said: “Recent regulatory changes, coupled with auto-enrolment and state pension reform, mean UK business leaders now crave stability.
“Businesses want to focus on ensuring employees are making the most of what’s on offer, but there is clear concern about regulatory changes eroding incentives to save, which must be avoided at all costs.”
Fiona Dunsire, Mercer CEO, said:“We support the need for stability. The focus now should be on enabling business to address the challenges of an ageing workforce and the urgent need to save more for retirement.”
On the need for the current pensions tax relief framework to be preserved, the survey shows:
79% say reviewing pensions tax relief should not be a priority for government
Nearly half of respondents (46%) say some employees could cease saving into pensions if a change occurs.
Neil Carberry, CBI Director of Employment and Skills, said: “Businesses are clear that the current framework of pensions tax relief at the point of saving – while complex – is the best for encouraging pension saving.
“Losing this would remove company incentives, as employer-provided pensions are the only way to deliver low-cost saving at substantial scale at levels above automatic enrolment rules. A change would cause damage to the fiscal position too in the long-term.”
Fiona Dunsire said: “It is vital the UK’s approach to pension tax relief remains unchanged as it is important to avoid imposing unnecessary cost on businesses. Our clients are still dealing with the introduction of pension freedom and auto-enrolment as well as preparing for the end of contracting out so there is little appetite for further reforms.”
On pension costs from Europe:
The second pension priority for the Government, according to boardroom leaders, is working with partners in Europe to avoid further costs due to policy changes
The potential for European regulations to load further costs onto UK DB schemes causes concern among 60% of pension managers by the proposed Institutions for Occupational Retirement II Directive (IORP II) and the actions of the European Insurance and Occupational Pensions Authority (EIOPA).
Neil Carberry, CBI Director of Employment and Skills, said: “Business leaders are looking for Government’s support to ensure European defined benefit pensions regulations avoid unnecessary regulatory costs of up to €440bn.
“To date, this is a great example of UK influence in Brussels, working with Germany, Ireland and the Netherlands, the UK Government and business has convinced the EU commission to step back.”
Frank Oldham, Senior Partner and Global Head of Defined Benefit risk at Mercer, said: “Solvency inspired funding disproportionately impacts on a select number of countries, including the UK. Our clients are already dealing with increased pension costs arising from ageing and high deficits and a blanket approach to pension regulation will further undermine enthusiasm for top class pension provision in this country. The EU should be doing all it can to encourage companies to strengthen pension provision and to improve employee savings habits.”
On Defined Benefit schemes still being a big issue for business:
The cost of DB schemes is weighing heavily on business activities, with nearly two-thirds (65%) of business leaders reporting a negative impact on investment, rising to over 80% for mid-sized firms.
The volatility of DB liabilities remains a particular challenge, with 90% of business leaders concerned about volatile markets worsening their funding position.
This is also translating into company performance, with over eight in ten (82%) of business leaders saying DB costs are impacting their bottom line.
To manage DB cost and risks, around a fifth (21%) of those still operating a DB pension scheme are closing their schemes to existing members.
Neil Carberry, CBI Director of Employment and Skills, said: “DB schemes may sound like a thing of the past, but for businesses across the UK they are very much today’s issue.
“The Pensions Regulator’s new growth objective was designed to help firms and the survey suggests that there is some positive change.
“We’ve always been very clear that a strong, solvent employer who can invest in the future is the best guarantee for a member’s pension benefits.”
Frank Oldham added: “Despite increased contributions anxiety over funding levels persists and we have seen a surge in companies looking to reduce risk in their DB schemes. Mercer has been leading the response and are actively involved in developing strategies from liability management to buy-out, longevity and investment risk management.”