Consultants have told PLANSPONSOR Europe finance directors at firms with relatively few employees – often with relatively high take up for existing schemes – are frequently deciding the administration behind changing contributions annually is more trouble than it is worth.
Companies have until October 2018 to meet their ultimate minimum contribution of 3%, with employee contributions reaching their minimum 4% at the same time.
In the meantime, firms can pay as little as 1% annually until September 2016 and 2% for two years after that.
But research from consultants LCP shows the ultimate 4% increase in payroll costs is likely to work out as closer to 2% with expected opt outs.
Meanwhile the administrative effort of making periodic changes to contribution rates means some firms are cutting out phasing altogether.
“About half our clients are doing it this way,” said LCP principle Andy Cheseldine, who specialises in advising firms on their defined contribution (DC) schemes.
“It tends to be the ones with fewer staff though, and with more financially literate employees, especially if there is already a scheme with high take up.
“Also some directors see it as way of gaining a competitive advantage in the recruitment market.”
Mercer head of UK DC Paul Macro agreed, saying: “If you already have a scheme and only 10%-20% of your workforce are not in it already, do you want to do something different for them? A lot of finance directors are saying ‘no’.”
He also claimed some firms expect higher opt-out if you put people in at a higher employee contribution, which could potentially even out the cost of paying higher employer contributions.
And Pension Capital Strategies auto-enrolment specialist Martin Freeman added: “Different employers are adopting different approaches.
“It can be a lot simpler without phasing and we are seeing both, mostly based on existing participation rates in schemes."