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CBI Boss Warns UK Government On Proposed Pension Reforms

by Robin Pilgrim, LawAndTax-News.com, London

26 September 2006

Richard Lambert, director-general of Confederation for British Industry (CBI) on Monday warned that proposed pension reform 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, Mr Lambert told the Secretary of State for Work and Pensions, John Hutton.

In a statement, the CBI warned that 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, the Confederation urged, explaining that:

"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, the CBI is 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, the CBI argues, and a light-touch, risk-based compliance regime should be enforced.

The CBI's submission to the Government's pensions white paper calls for a package of proposals including:

  • Phasing in compulsory employer contributions over three years, with a Government commitment to firms not to ratchet up the level by fixing it in the bill at 3% of employees' salary.
  • Time-limited financial support for employers with fewer than 50 staff through reduced compulsory contributions - 2% of employees' salary instead of 3%.
  • Minimising the administrative and cost burden on employers via a six month waiting period before employees are automatically opted-in, with auto-enrolment starting at 25. This would apply to both existing and new pension schemes. There should also be a simple ‘good scheme’ test so employers can offer their alternative without having to jump through hoops.
  • Deregulating and simplifying occupational pension rules so firms are encouraged to continue offering their own good quality pension schemes. Government should also consider incentives for employers who offer top quality schemes.
  • Making employees, not firms, responsible for choosing their pension provider unless employers wish to do so. There should also be a 'central clearing house' so that employers have a single point of contact for dealing with administration.
  • A Government commitment to a ‘light-touch, risk-based’ enforcement regime aimed at tackling likely offenders, based on the successful model adopted for the minimum wage.

Speaking in May, following the unveiling of the White Paper, Adair Turner, former Chairman of the Pensions Commission, stated that:

“The White Paper commits British pension policy to the three key policies which were at the centre of our recommendations: first, state pension provision which increases over time in line with the nation’s prosperity, limiting the extent of means-testing, and made affordable by a steady rise in the state pension age as people live longer. Second, a better deal for women. Third, automatic enrolment into a new system of low cost personal pension savings accounts with provision for an employer contribution. We hope that this overall architecture can command support from all parties, whatever the debates about details.”

The former members of the Commission, which was a temporary body established in December 2002 and wound up earlier this year, announced that:

“We welcome the government’s commitment to the three key features of the Commission’s proposed new private pension saving system: automatic enrolment, organisational arrangements which ensure low cost provision, and a compulsory matching employer contribution set at a minimum 3%. A package of measures to mitigate the initial cost impact on small businesses will be an important implementation detail. And the Commissioners continue to believe, as the White Paper tentatively concludes, that a single national scheme, rather than a multi-provider model, will deliver lowest cost, and thus highest possible pensions to savers."

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