Pension reform must not become tax on employment

May 25 2006 by Nic Paton Print This Article

The Pensions White Paper has been given a cautious welcome by British business leaders, amid warnings the reforms must not end up as a "tax on employment".

Institute of Directors director general Miles Templeman welcomed the reforms as at last giving Britain's pensions' crisis the attention it deserved. "The IoD welcomes parts of the White Paper including the increase in the state pension age and re-establishing the earnings link," he said.

But he added: "Worryingly, the pensions system looks as though it may be as complicated after the White Paper as it was before. The Government may have lost a real opportunity to simplify the system for the 21st century. We need to sweep away the complexity of the current system.

He also warned the notion of compulsion on employers to contribute to an employee's pension.

"It will act as a tax on employment increasing the price of labour and reducing demand.

"There is simply no economic case for compulsory employer contributions. The government cannot continually offload social problems onto businesses and expect them to pay," he said.

The Chartered Institute of Personnel and Development was more upbeat, arguing that the new pensions savings scheme will improve pensions, not drag them down

A study of more than 1,000 employers by the institute found that employers are twice as likely to say that the proposed 3 per cent employer contribution towards occupational pensions is too low as say it is too high.

Only 1 per cent would cut their contributions as a result, with the vast majority saying they had no intention of changing their existing pension arrangements.

Charles Cotton, CIPD pensions adviser, said: "People are becoming increasingly savvy about the package of rewards available to them from different employers. Good employers already offer decent pensions.

"But poor financial literacy among the general public means that bad employers have been able to get away with offering nothing for far too long.

"The proposed NPSS will level the playing field, but our research shatters the myth that the scheme will drag down the level of existing employer pension contributions. It would make no sense for employers competing to attract staff to cut pensions to minimum levels," he added.

TUC general secretary Brendan Barber called the White Paper "progressive" and a document that tapped into the union body's own concerns and campaigns.

"While we were once told our campaign objectives of a state pension linked to earnings, compulsory employer contributions and a fairer system for women were unrealistic and naÔve, today they are the central pillars of the White Paper," he said.