Hidden auto-enrolment issues: pension scheme funding

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Date published:

Tuesday, 26 February 2013

Although many employers realise that auto-enrolment is likely to increase their pension contribution costs, few seem to have recognised the potential hidden impact it could have on scheme funding.

The new duty to automatically enrol eligible jobholders into a workplace pension scheme will cause a squeeze on cashflow for many businesses. For employers with a defined benefit scheme, the issue will be magnified.

Experience shows that pension scheme funding negotiations can be difficult at the best of times. With the additional employer pension contributions that will arise for many businesses due to auto-enrolment only serving to constrain the funds available to employers, I think this could make discussions between a board of trustees and sponsoring employer even more challenging.

Dealing with this will take effort on both sides. Employers need to be clear about their pension strategy and how their defined benefit scheme fits within it, and pension scheme trustees need to fully understand this broader context and the potential impact it has on their scheme. My opinion is that many may find it invaluable to have an independent expert to help manage and guide funding negotiations to a successful conclusion.

Mark Homer - Scheme Manager

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