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Sarah Green column

Employers will need a comprehensive support package from the Government if its pension white paper proposals are to succeed in encouraging more people to save for their retirement.

Employers will need a comprehensive support package from the Government if its pension white paper proposals are to succeed in encouraging more people to save for their retirement.

Whilst ultimately we support the broad thrust of the pensions white paper as it is a real opportunity to put pensions saving on a sound footing for the long-term, there are dangers of unintended consequences which could undermine this aim. The proposed legislation, which includes automatic pension scheme, enrolment and compulsory company contributions, will be hard for small firms to adopt and could undermine existing pension schemes.

Unless the burden is reduced there are real risks that employers will react in ways which could jeopardise the objective of increasing private pension saving.

This could include employers "levelling down" existing pension contributions, or result in employees being discouraged from remaining opted-in to the new personal pensions accounts. It is also vital that trust in pension schemes is not jeopardised. If it is, people are likely to opt out and the mission of increasing pension saving, which business backs, will be unsuccessful.

To prevent this, we are urging Mr Hutton to adopt a series of measures aimed at assisting both small firms without pension schemes, and employers with existing arrangements, to ensure cost increases and administrative burdens are kept to a minimum.

These include fixing the level of compulsory employer contributions at 3%, with a reduction for the smallest firms, and a six-month waiting period before staff are automatically-enrolled into schemes.

Employers should also be kept at arms length from the administration of the new pensions accounts, and a light-touch, risk-based compliance regime enforced. The Government should also deliver on its promise to review and simplify existing legislation for employers' occupational schemes.

Our proposals would give £850m worth of support to small firms for the benefit of their employees. This is a fraction of the £4bn a year windfall the Government will save by ending the contracted-out rebate for defined contribution schemes. All of this £4bn should be ring-fenced to support private pensions savings - with helping the smallest and most vulnerable firms the number one priority.

Sarah Green is regional director of CBI North East

 

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