Whilst ensuring legislative compliance is important, optimising the value from your pension spend is crucial to ensure if you are to achieve your corporate objectives.
The minimum contributions required under auto-enrolment will only deliver a retirement income at the very bottom of the range of which most people aim. Increasing governance requirements, changes to the taxation system, retirement flexibility, removal of default retirement age and equality legislation will also influence scheme design. We would suggest that employers consider total pension costs against what can be afforded and, ultimately, needed to pay to recruit and retain employees.
Financial planning
Model Solutions for Auto-enrolment is a unique tool developed by Xafinity, which enables employers to identify their optimum DC Scheme Design. It enables key decision makers to precisely model all of the key factors of their schemes, to explore alternative strategies and arrive at the combination of measures that most closely suits their corporate objectives.
The model enables employers to balance the risks and benefits of specific future contribution rates against the costs of various options for change, to create a pension strategy that supports their corporate priorities, requirements and timelines. Crucially, with Model Solutions all the key players can be involved in developing a solution which balances all the stakeholder needs, in real time. From this model, Xafinity can prepare a roadmap for implementation.
Xafinity’s research indicates that on average 60% of employees generally join their employer’s pension arrangement. Auto-enrolment is expected to increase this to 80%. For many organisations, auto-enrolment will mean that the cost of employing people will rise. In addition to contributions, the work involved with administering, monitoring and effecting auto-enrolment, opt-ins and opt-outs will also increase costs.
Some employers may meet the increased costs by providing salary growth in the form of pension contributions, whilst others may spread current pension spending more thinly. Others may take a different view, wishing to offer all employees access to good quality pension provision. Whichever approach is adopted, understanding the implications of different approaches from a cost and risk perspective will be key to ensuring that corporate objectives are achieved.