Employers group calls for compulsory pensions

2005

One of Britain's largest employers groups has called for a radical overhaul of the country's pensions system including compulsory contributions by both employers and employees.

The EEF, which represents some 6,000 manufacturing, engineering and technology firms, has broken ranks with other employers groups, including the CBI, by calling for compulsory minimum pension contributions by all employees and employers of 2 per cent of earnings each in 2015, increasing gradually to 4 per cent by 2025.

These compulsory contributions would be accompanied by an enhanced basic state pension of 21 per cent of average earnings at 65, rising to 25 per cent of average earnings at 75. This would currently equate to about £111 per week and £132 per week.

The Pensions Policy Institute estimated that this would require an increase in national insurance rates for both employers and employees of between 2 per cent and 3 per cent by 2055.

The retirement age would be reviewed regularly by an independent body, which would make recommendations to government.

This pension – which would replace the current complex two-tier arrangement - would be uprated annually in line with movements in average earnings and would result in a reduced need for means-tested benefits, the EEF said.

The third pillar of the proposals would see a reduction in the regulation around private sector pension provision to encourage additional voluntary contributions.

The proposals have been submitted to the pensions commission headed by ex-CBI director general, Adair Turner, whose final recommendations on how to tackle Britain's pensions crisis will be published in November.

"We have to recognise that putting a sticking plaster on the current pensions system is no longer an option and that government, employers and employees will all have to play their part in the future funding of pensions in the UK," said Alan Wood, EEF President and Chief Executive of Siemens UK.

"Our fully-costed, three-pillar approach sets out a constructive and realistic solution to the UK's pensions problems. It is a modern, flexible approach that reflects the changing nature of today's labour market and society," he added.

The EEF argued that its proposals address the risks business now face in running occupational pensions schemes while allowing the flexibility of either retaining existing schemes or, making pension contributions for employees in a system that does not require employers to manage these funds.

In particular, it says, they would reduce pensioner poverty and means-testing, encouraging higher savings levels and providing better retirement income for women who are particularly disadvantaged by the current system.

But other employers are far from convinced by the arguments. In June, a survey by the British Chambers of Commerce found that one in five employers will cut jobs if they are forced to pay into pensions for their employees, while the CBI has described employer compulsion as "a tax on jobs".

Pensions consultants Mercer, meanwhile, have described the idea of compulsory individual pension saving as "unaffordable and unrealistic" because the high cost of housing in the UK means that first-time buyers in particular simply could not afford to meet the required level of saving.

But the TUC welcomed the report. Its general secretary, Brendan Barber, said: "For the first time an important employer organisation has come out as a supporter of compulsion. No longer can other employer organisations pretend business is united."

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