Employers not the pensions villains

Oct 12 2004 by Brian Amble Print This Article

Employer pension contributions have more than doubled in the past seven years, rising from £18bn in 1997 to £37bn in 2003.

The figures were released by employers group the Confederation of British Industry (CBI) ahead of the long-awaited report on pensions by former CBI Director-General Adair Turner.

The CBIís current Director-General, Digby Jones, said that he hoped the Turner report would serve as a wake up call.

"It is time to pull heads out of the sand and start talking about credible solutions, rather than only beating up on employers," he said.

"The rise in employer contributions demonstrates the scale of the problem that firms have been responding to. There have been some poor examples but generally speaking companies have been miscast as the villains of the pensions piece.

"Firms must do more but so must individuals and government. It may be politically difficult but it's a government responsibility to show leadership and so far this has been insufficiently forthcoming. I have high hopes the new Secretary of State will move the situation to new ground."

But pension compulsion was not the answer to the problem, the CBI said, and such a move could cost business up to £22 billion a year. Firms would see it as "a tax on jobs", while employees might resent being forced to invest in the stock market, it added.

"Compulsion would present the government with a hostage to fortune," said Digby Jones. "If an individual's fund failed to deliver after compulsion, they might seek compensation from the government who had made them enter a scheme in the first place."

But the CBI leader made clear that business is not "running scared" of radical solutions.

Itís preferred solution Ė one broadly shared by Blairite think-tank, the Institute for Public Policy Research - is to raise the state pension by 32 per cent to the level of the pensions credit - a rise from about £80 to £105 a week in today's money. This would eliminate pensions means testing and encourage more people on low incomes to save.

The increase would be partly funded by gradually raising the state pension age to 70 between 2020 and 2030.

Yet the CBI stressed that employers must also do more to ensure the survival of the UK's voluntary pension system. It called on businesses to modernise pensions by combining where appropriate parts of defined benefit and defined contribution schemes and said that firms should contribute to pension schemes with employees, where they can afford to.

At the same time, however, Digby Jones said it had been "a grave mistake" to remove the dividend tax credit, which cost funds £5bn a year. He urged the government to bolster confidence in the voluntary system by giving a commitment not to further erode the tax position of savings schemes.

"Ministers must do nothing to add to employer costs if we are going to reinvigorate the UK's voluntary system. I am confident we can get things back on track but only if employers, the government and individuals all accept their responsibilities,Ē he said.

"It is easy constantly to blame business but there are more firms working hard to resolve the problem than the government or unions give credit for."