UK - The government has indicated it will reconsider contribution increases for local government pension schemes (LGPS) after renewed warnings that the increases would lead to significant opt-outs and undermine the schemes' investment potential.

Speaking at an Institute for Public Policy Research event, Lord Hutton, who led the government's review of public sector schemes, reiterated that there was a "serious" risk that many would leave the schemes due to the 3.2% contribution hike for employees.

In a separate interview with the Guardian, the chair of the Local Government Association Baroness Eaton cautioned that the opt-outs would then risk undermining a scheme's investment potential.

Asked if local government schemes would be treated differently from other, unfunded government schemes, a spokeswoman for the Treasury told IPE: "We recognise the different funding of the Local Government Pension Scheme, and, as the chief secretary has made clear, we are considering this as part of ongoing discussions with the unions."

Baroness Eaton had previously warned chancellor George Osborne that the contribution increase would "seriously undermine" LGPS, while the chief executive of the London Pensions Fund Authority Mike Taylor said the increase would lead to mass opt-outs.

In other news, insurance company Aviva has agreed to sell its roadside assistance business RAC to asset manager Carlyle Group for £1bn (€1.1bn), but will retain the unit's underfunded pension scheme.

The sale of RAC by Aviva is part of the company's plan to focus on insurance and savings businesses in its priority markets. As part of this plan, Aviva has already sold less profitable businesses in Italy and the US.

However, Aviva will continue to make contribution payments to the pension scheme to cut the deficit, as well as a one-off contribution of £67m.

As of 31 December 2010, the scheme had an IAS19 deficit of around £160m.

Last year, the insurance company announced plans to shut both the Aviva and RAC defined benefit schemes to future accrual and move staff to a money purchase arrangement after the combined deficit of the two schemes increased from £1bn in 2006 to around £3bn last year.

Meanwhile, a third of UK employers are unsure if they will have the funds required to pay for additional contributions required by auto-enrolment, a survey by Hymans Robertson has found. 

Additionally, the consultancy found that, 18 months away from the introduction of auto-enrolment, almost 75% of finance directors (FDs) and two-thirds of respondents overall were unaware of the additional cost burden placed on companies by the new contributions.

Lee Hollingworth, head of defined contribution at Hymans Robertson, estimated that, for a company employing 7,500 people, the total cost of contributions and new infrastructure would be £3m. He said it was "very worrying" that only 17% of companies had a firm grasp on the overall cost.

Only 55% of respondents, comprising human resources directors (HRDs) in addition to FDs, were confident they would be able to cover the complete cost involved.

Hollingworth added: "The fact that this many FDs and HRDs are not confident about finding the budget to pay for auto-enrolment in itself is a cause for concern.

"This is a clear sign organisations haven't begun preparing for this yet. And if they don't know the costs, how can they know if they will have the budget?"

The results come a few days after the consultancy predicted there would be a "huge stampede" on the National Employment Savings Trust (NEST), as not enough employers had alternative auto-enrolment systems in place.

NEST's chief executive Tim Jones has denied the allegation, saying that the scheme would have the capacity to "take on all employers" that wished to use them as their main option from 2012.

"Our proposition has been designed for all sizes of employer, from the largest to the smallest," he said.

Finally, new research driven by the National Association of Pension Funds (NAPF) shows that making the state pension simpler could spur millions of younger people to save more toward their retirement.

The survey finds that around 47% of people aged between 18 and 34 would save more for their retirement if they knew how much state pension they would get.
 
Government figures show that 78% of 18 to 24 year olds and 43% of those aged 25 to 34 are not saving for their retirement.

Joanne Segars, chief executive of the NAPF, said: "Young people are keen to take more control of their retirement, but they need a clearer state pension foundation on which they can build their own nest egg.
 
"If they could see the state offer might not be enough, they'd be more inclined to get their own savings sorted, partly to avoid working past an increasing retirement age."
 
The government is currently thinking of simplifying the system and introducing a more generous flat-rate pension guaranteeing the equivalent of £140 a week in today's money.

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