Is the work place pension just ruining pensions for everyone else

hugheskevi

If you take a Defined Contribution scheme and an employer who operates salary sacrifice with all employer National Insurance savings added to the employee's pension contributions, then you have a perfectly flexible salary/pension combination which enables the employee to choose the employer contribution rate themselves, at any given level of total remuneration above minimum wage.

The employee can choose between higher salary and higher employer contributions, with the associated income tax and National Insurance benefits. If the employer were to then insist on contributions above the statutory minimum, they are just restricting employee choice.

As a variant, the employer could choose a default contribution rate at a level above the statutory minimum, with the option for employees to reduce contributions to statutory minimum to achieve the same flexibility, but with the liklihood that most employees will stick with the default.

I think there is a sound theoretical argument for the above in terms of maximising individual and employer outcomes in a fully rational system. Although I acknowledge the assumption of being fully rational with regard to pensions isn't really reasonable in many cases, hence the appeal of a default which is appropriate for most members but with flexibility for members to structure their own remuneration package.

If few employees take much notice of pension in comparison to salary, then it is sensible for employers to compete on higher salaries rather than pension.

Malthusian

There definitely have been cases of companies "levelling down" and reducing contributions to the auto-enrolment level.

On the other hand when I was last looking for a job, most potential employers seemed to offer up to 5% employer and 5% employee, even though auto-enrolment was already in place by then.

If you are a low-skilled / low-paid worker you are more likely to see levelling down, but many people in that position would previously have got nowt as far as pension contributions go, which is the point of auto-enrolment.

Companies which previously had defined benefit schemes are more likely to have generous defined contribution levels, as these are often agreed to get the trade unions to accept the closure of the DB scheme.

How likely you are to encounter levelling down will depend on your chosen industry and your pay grade. Due to the above factors, it's very plausible that in some sectors there will be levelling down, whereas in other sectors low-paid workers historically got no pension so they are now better off.

Thrugelmir

little_alien wrote: »

it may be cynical but i cant see there being any pensions where employers pay more in a few years...

Good employers will wish to retain their valued employees. Staff recruitment is a costly and time consuming exercise. Let alone the cost of training and development.

Better to save into a pension than fritter the money away on overpriced pizzas, netflix and sky subscriptions, iphones etc...... Saving is a good habit to have. Something that's been lost between recent generations.

seefer

This 'qualifying earnings' aspect is an infuriating and unnecessary complexity for employees. Any employee new to the NEST auto-enrollment who takes a look around their account pages will not find a clear explanation of what that 8% is actually a percentage of. Why is it not made clear that 8% is in most cases, not 8% of your full salary but 8% of 'qualifying earnings'? The only explanation of 'qualifying earnings' seems to be tucked away on the NEST pages for employers, not employees.

Also, does the NEST Pension Calculator page aimed clearly at employees take into account the difference between full salary vs qualifying earnings? For example, when trying out 'what-if' scenarios to see how your pension pot could change depending on one-off or regular additional payments you make, I saw that one of the numbers you had to plug in was your Salary. If an employee plugs their basic salary number into this will they not get completely inaccurate numbers because this figure is not taking into account whether their employer is not using full salary calculations?

Why is there even a need to allow employers to use anything other than straightforward full salary calculations for contributions? It all seems needlessly confusing.

stronginthesun

i work in a warehouse where most of the workers are on minimum wage and in their early mid twenties . Against my advice and the companies most of them have opted out of it . simply cant afford it with rent car and bills even thou they are turning down free money , lets hope they see sense in the future or the state pension stays .

Thrugelmir

stronginthesun wrote: »

i work in a warehouse where most of the workers are on minimum wage and in their early mid twenties . Against my advice and the companies most of them have opted out of it . simply cant afford it with rent car and bills even thou they are turning down free money , lets hope they see sense in the future or the state pension stays .

Always be people will opt out. As long as the majority do remain in. Then the habit of saving be regained.

Silvertabby

stronginthesun wrote: »

i work in a warehouse where most of the workers are on minimum wage and in their early mid twenties . Against my advice and the companies most of them have opted out of it . simply cant afford it with rent car and bills even thou they are turning down free money , lets hope they see sense in the future or the state pension stays .

If they can't manage on the minimum wage, how will they manage on just the basic State pension of £8,500 ?

Marcon

little_alien wrote: »

Please correct me if i'm wrong but just seems like the workplace pension is a bad deal?

Yes, you're wrong and happy to correct you. You seem to think that 'workplace pension' is some sort of actual pension (or at least a prescriptive deal), whereas all it means is a pension to which your employer contributes. Still masses of employers out there who can see the merit of offering a better contribution than the minimum required by law. Perhaps you need to apply to 'better' companies?

JoeCrystal

seefer wrote: »

This 'qualifying earnings' aspect is an infuriating and unnecessary complexity for employees. Any employee new to the NEST auto-enrollment who takes a look around their account pages will not find a clear explanation of what that 8% is actually a percentage of. Why is it not made clear that 8% is in most cases, not 8% of your full salary but 8% of 'qualifying earnings'? The only explanation of 'qualifying earnings' seems to be tucked away on the NEST pages for employers, not employees.

I cannot agree any stronger than that; sooner they get rid of qualifying earnings, the better.

stronginthesun

Silvertabby wrote: »

If they can't manage on the minimum wage, how will they manage on just the basic State pension of £8,500 ?

they wont but like i said early twenties 67 or more is a long way off in their eyes