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Auto-enrolment will let companies get away with paying less

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Companies can get away with paying less into employee's pension pots with new requirements coming into force, says leading expert.

Auto enrolment will give companies “an excuse” to close their more generous final salary schemes and reduce their pension obligations to the minimum, warns the chief executive of deVere Group, Nigel Green.

Green said: “Against a backdrop of a tough economic environment, tax and legislative changes, and the fact that people are living longer, final salary schemes have become less and less financially viable for many employers. 

“As a result, many have wanted to abandon them for a while, and auto enrolment provides them with the perfect excuse to consider closing future accruals in such schemes as part of a final exit strategy.

“This is of real concerns as it could result in firms ‘levelling down’ their pensions arrangements to the minimum requirements.”

With major organisations, including the Royal Opera House, already confirming that they are in a “consultation process” on closing their final salary schemes, the trend is likely to ‘snowball’, according to Mr Green.

He comments: “As auto enrolment gathers momentum, and as the business ‘herd mentality’ comes into play, we expect to see more and more companies closing such pension schemes.”

“In addition, as a growing number of firms stop paying in, pressure will mount on the existing schemes which could lead to their failure.”

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