Employers need support if pension reforms are to work

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The director general of the CBI told a fringe meeting at the Labour party conference today that employers will need a comprehensive support package from government if its pension white paper proposals are to succeed.

Richard Lambert warned that 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, Mr Lambert told attendees, including the Secretary of State for Work and Pensions, John Hutton.

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, 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 three per cent, 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 says, 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.

Mr Lambert said: “The CBI supports the broad thrust of the pensions white paper, it is a real opportunity to put pensions saving on a sound footing for the long-term. But there are dangers of unintended consequences which could undermine this aim. Many smaller firms will find the sheer cost of compulsion difficult to absorb and they will need targeted financial support.

“Our proposals would give £850 million worth of support to small firms for the benefit of their employees. This is a fraction of the £4 billion a year windfall the government will save by ending the contracted-out rebate for defined contribution schemes.

“Employers support the concept of automatic enrolment, but we must be realistic. Without additional safeguards, such as a sensible waiting period, the new system could lead to a levelling-down of existing provision. That risk can be mitigated if the government adopts the measures we are proposing.

“With the first pension schemes and auto-enrolment not due to come in to force before 2012 the government must use the time to ensure that what looks good on paper is workable and sustainable in practice.”

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