Ruth Mitchell

Assistance needed if employers are to tackle problem pension schemes

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

Richard Lambert, director-general of the CBI, has 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 will tell the Secretary of State for Work and Pensions, John Hutton.

This could include employers ‘levelling down’ existing pension contributions. It is also vital that trust in pension schemes is not jeopardised, Mr Lambert will add. 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. 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.

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. “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.”

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