The UK employers’ trade association, the Confederation of British Industry (CBI) today urged the UK government to embark on a multi-million pound drive to help small firms offer pensions, with the aim of boosting retirement savings for the millions of workers they employ.
In its response to the Pensions Green Paper, the CBI warns the government will not solve the current crisis without making pensions more affordable to small firms. It points out that only a fifth of firms with 50 to 100 staff are able to offer a scheme. This compares with 80 per cent of firms with more than 1000 staff.
The CBI argues that relatively modest government incentives could make a real difference and avoid the need for much greater state pension spending in the future. It says alternatives such as legislation forcing all companies to provide pensions would impose unaffordable costs of up to ?29 billion a year on thousands of businesses.
“The Green Paper proposals to simplify the system are very welcome but they alone will not be enough to encourage more schemes to be offered,” says CBI Deputy Director-General, John Cridland. “Simplification will not achieve huge or immediate savings. Smaller firms must be the target of extra incentives to get more pensions taken up and to make saving into them worthwhile for employers and individuals. The pensions crisis has no easy or cheap solutions. There is huge competition for public spending but if we fail to take radical action now we will pay many times over in the future.”
To stimulate pension saving the CBI is proposing its so-called “Partnership Pension.” It is aimed at helping smaller employers (those with less than 250 employees) to offer and contribute to personal pensions. Currently, says the CBI, the cost of contributing enough to give a worthwhile pension is beyond many smaller firms. A three per cent government pensions grant in the early years of a stakeholder pension could make it more attractive. Employers and employees would each voluntarily contribute at least three per cent of an individual’s earnings. A ten per cent take up would cost the government 1.5 billion a year.
Secondly, the CBI advocates start-up assistance for industry-wide schemes or schemes involving clusters of employers. By acting together, says the CBI, this would reduce administrative rates and attract better deals from providers.
“Employers must not be compelled to contribute to pension schemes,” warns Cridland. “The burden would discourage firms from taking people on and threaten the viability of some smaller ones. Pensions provision will always be beyond the scope of the smallest firms but many smaller firms want to play their part in providing employees with a secure retirement. They often can’t because the costs are more than the business can afford.”
The CBI wants the government to remove barriers to people working longer but opposes the abolition of normal retirement ages. Business supports extra back-to-work help for the over 50s and more generous incentives for deferring state pensions. But the CBI says an open-ended right to go on working would create significant difficulties, because without a predictable cut-off there could be a loss of dignity for workers who felt the need to work-on against failing health or fitness. There could also be difficulties for employers planning future staffing and an increase in employment disputes.
Lastly, the CBO says the government should also consider allowing individuals to withdraw some money from their funds. That would enable pensions to compete more favourably with ISAs or PEPs as a home for savings with the proviso that funds must not become dangerously depleted.