Pensions reform a long way from reality

Sep 25 2006 by Nic Paton Print This Article

The British government will need to do a lot more to help out employers if its proposals for reforming pensions and getting more people to save for retirement are to succeed, captains of industry have warned.

A report from the Confederation of British Industry has warned that the government's plans, which include automatic pension scheme enrolment and compulsory company contributions, will be hard for small firms to adopt and could undermine existing pension schemes.

Richard Lambert, CBI director-general, said that, unless the burden is reduced there are real risks that employers react against the reforms.

This could mean employers "levelling down" existing pension contributions and discouraging employees from remaining opted-in to the new personal pensions accounts.

The CBI wants the government to fix the level of compulsory employer contributions at 3 per cent, with a reduction for the smallest firms, and bring in a six-month waiting period before staff are automatically-enrolled into schemes.

Employers should also be kept at arms length from the administration of the new pensions accounts, and there should be a "light-touch" risk-based compliance regime.

"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," said Lambert, speaking at a fringe meeting of this week's Labour Party conference.

"Many smaller firms will find the sheer cost of compulsion difficult to absorb and they will need targeted financial support," he added.

"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," Lambert concluded.