Pension schemes run by small firms are failing to produce a sufficient retirement income.
Pension contributions need to double to achieve a reasonable retirement income.
Over a third of employees working for smaller firms are expected to opt out of the new government pension scheme planned for 2014, according to the Association of Consulting Actuaries (ACA).
All UK firms will be required to auto-enrol their employees into the new workplace pension scheme, called the National Employment Savings Trust (NEST). However, staff members can choose to opt out if they wish.
The ACA survey found that 35% of workers may choose not to enter into the scheme, which states that pension contributions must total at least 8% of employee earnings – a minimum of 3% must be contributed by employers, 4% from employees and 1% by way of tax relief.
Of the 404 businesses that participated in the research, 84% said two thirds of their employees did not join the current schemes in place because they felt their firms were “disillusioned with pensions”.
Over 95% of small enterprises said the main reason why they do not have a scheme was cost.
Just over a fifth of respondents said they were considering the financial impact that the NEST rules would have on their business.
ACA Chairman Stuart Southall said employers and workers are failing to keep up with the cost of building a sufficient pension, adding that current pension contributions need to double to 15% of earnings at the very least to achieve a reasonable retirement income.
He added: “Greater transparency and low-cost products will play a part in this, as will better consumer financial education and auto-enrolment – all of which is ‘work in progress’ with some areas more advanced than others, but more will be needed. A plan to provide new incentives to save, building up over a number of years as the economy recovers, is badly needed”.
He continued: “The smaller firms covered by this survey – so important to the UK economy in terms of employment and innovation but – where pension provision is endemically weak – seem particularly needful of financial incentives to kick start sufficient levels of pension saving“.