A radical rethink is necessary on the Department for Work and Pensions'' (DWP) consultation on auto-enrolment rules, as they could lead to high costs for employers and the leveling down of existing pension provision, warns the National Association of Pension Funds (NAPF).

While the NAPF supports the aims of the 2012 reforms, and the introduction of auto-enrolment itself, it is concerned that the estimated thousands of pounds that will arise as a result of opt-outs will not be palatable to employers. In order to avoid the costs and complexity of applying the new processes to their existing schemes and so comply with the rules, the NAPF says they are more likely to opt purely for Personal Accounts and the 2012 minimum contributions, which will result in leveling down.

"The NAPF supports the introduction of auto-enrolment, however the DWP's proposed processes and timescales, set out in the draft regulations, are too rigid," commented Nigel Peaple, NAPF director of policy.

"We are concerned that the requirements will undermine the Government's policy objectives of maintaining good pension provision, preventing leveling down and increasing overall savings levels.

"These problems are largely avoidable if the DWP radically alters its approach and allows employers much more flexibility. The government must act urgently to take account of pension schemes' concerns."

As a result, the NAPF proposes that the auto-enrolment period be extended from 44 days to three months, and that the timescale over which employers have to provide information to employees is extended to two months from seven to 14 days. Opt-out forms should have greater flexibility, and the ban on employers from giving them to their employees should be lifted. Employees, the NAPF says, should also be allowed to opt-out as soon as they receive information about the scheme, and the period in which they may opt-out be extended from 30 days to three months.

The NAPF also thinks contributions should be handled with greater flexibility during the opt-out period, and the deadline for the return of contributions should be simplified and in some cases extended to a maximum of two months. Finally, the postponement period should be extended from 90 days after starting employment to the end of the third full calendar month.

The NAPF's response is available here.

Meanwhile, the NAPF's fourth Workplace Pensions Survey shows that the country's pension saving could be improved by tackling a lack of knowledge and confidence amongst those who choose not to join a company pension scheme when one is.

Around 4.7 million employees do not choose to join a company pension scheme where available, and of them, 60 per cent said they were unaware of how much their employer contribution was worth. Two-thirds did not enquire as to whether a pension was on offer when they joined the company and 45 per cent were unaware of tax relief rules on contributions.

NAPF chief executive, Joanne Segars, said: "With confidence in pensions remaining low - the NAPF Pensions Confidence Index stands at just seven per cent, building
knowledge will go hand in hand with building confidence.

"This will be especially important in the run-up to 2012 when millions of people will be automatically enrolled into a pension for the first time."

She added that it is vital that a campaign designed to improve understanding and confidence be led by the Government.

- Pensions Age June 2009

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