Employees 'will be the real victims' of pensions compulsion

2005

The government has been warned that businesses in Britain will be forced to make job cuts and cut wages if goes ahead with proposals to force employers to make a three per cent pension contribution for their staff.

The suggestion that employees should pay four per cent of their earnings into a pension scheme – with employers contributing three per cent and the government one per cent – is one of the recommendations contained in Lord Turner's long-awaited report into Britain's pension system, published today.

But figures from the British Chambers of Commerce (BCC) suggest that employers who do not already contribute to a pension scheme – those firms targeted by the so-called 'Britsaver' scheme – could be forced into staff cuts, pay freezes or increased costs for customers.

A BCC survey of over 800 businesses found that a quarter of those firms that do not currently provide a pension contribution would be forced to lay-off staff if required to make a pension payment on behalf of all employees.

Over a third of businesses would have to freeze salary increases, while one in three would be forced to pass the cost onto customers.

While the BCC acknowledged that the 'Britsaver' scheme would not necessarily mean employers would be forced to pay into a pension scheme for all employees, firms would inevitably would see their labour costs increase as a result of the scheme.

Its survey found that three-quarters of firms that employ less than 50 people and that do not currently offer a pension contribution say the reason for this is that they cannot afford the cost.

Richard Smith, employment services director at UK employment law advisors, Croner, also believes that employers would face a 'lose-lose' situation under the proposals.

"Not only will employers have to make significant efficiency cuts to bridge the pensions gap, there is no firm evidence either to say that promoting pension contributions as an employee 'perk' has any positive effect on recruitment, retention or motivation," he said.

"SME employers have nothing to gain from Lord Turner's recommendations," he added.

"If the private sector retirement age is raised to 67, compared to 60 in the public sector, this is potentially very damaging for SME employers. Not only in terms of cost, it will also make it increasingly difficult to attract the best staff, who are likely to consider it a no-brainer that the public sector will offer a more comfortable work/life balance and greater job security."

He also pointed out that smaller employers would suffer disproportionately from the day-to-day impact of administering the proposed pension schemes.

"While larger organisations with established schemes may well be content with the idea of compulsion, smaller employers may have more issues around the time, cost and expertise to administer such schemes.

"We must also consider employers who may have only one or two employees - they would be ill-placed to run a scheme of any sort.

"The upshot is that, if private sector businesses are compelled to contribute to pensions, all employers will find this money from planned payroll budgets, meaning they will have to explore ways of improving efficiency, which could include job cuts and lower wages.

"This in turn disadvantages these businesses by making them less attractive as employers, so it really could be a double blow."

"British businesses cannot afford for the Government to foist this scheme upon them," said David Frost, the BCC's Director General.

"At a time when our companies are facing fierce competition from countries such as India and China, any form of compulsory pension contributions is the last thing that UK employers need."