Smaller schemes to exceed minimum AE rate

In November, retail union Usdaw revealed it has battled to stem levelling-down at a few medium-sized organisations, which were seen by unions as part of a minority of employers.

Now consultants for SMEs with staging dates towards the end of 2013 and during 2014 – typically those with 500 employees or fewer – have reported plans to provide more than the minimum level set by the government. The total minimum that has to go into a person’s pot begins at 2 per cent of earnings.

Jill Brown, pensions consultant at Trigon Pensions, said around 95 per cent of the company’s clients planned to offer higher defined contribution rates than required by law, and to keep their current benefit structures in place. 

“Some of our schemes offer matching, but some of them might offer contributions of up to 8 per cent, perhaps,” she added. “If the individual pays 4 per cent, the company may pay 8 per cent.”

The fact that trustees at smaller employers are likely to be members of the pension plan themselves may influence a scheme’s decision to maintain a generous contribution rate, Brown said.

Some smaller employers plan to stick to higher contribution rates as they have fewer employees and sometimes better take-up – so the potential increase in costs from auto-enrolment is not as great.

Robin Hames, head of marketing at Capita Employee Benefits, said: “Because of the nature of smaller organisations, communication is a bit easier – it feels more like a community.

“It is obviously harder [to cut pension rates] the bigger the company is.”

He added: “The issue of cost impact through the take-up of auto-enrolment is less immediate because they have already got a pretty high take-up level.”

Smaller companies that already exceed the auto-enrolment requirements could be more likely to maintain them for new members.

Mark Pemberthy, director and head of auto-enrolment at JLT Benefit Solutions, said: “Typically with smaller companies, it does tend to be quite black and white. If they do take pensions seriously they tend to have a pretty generous scheme.

“But what we don’t see is lots of movement of those schemes that don’t have much voluntarily putting in place very generous arrangements.”

Many SMEs are currently focused on tackling the structural elements of their pension arrangements, rather than strategic details, according to Pemberthy.

He added: “But it really depends on what the drivers are of that business and what the money available is.”