Yet another document has landed on the ever-growing pile of reports about the future of the pension industry in the UK. Yesterday the Government-appointed Employers Task Force chaired by former Sainsburys CEO Sir Peter Davis warned that the voluntary approach to savings is drinking in the “last chance saloon.” The report says that that 9.6 million UK workers are not saving enough for their retirement. Employers face higher taxes and even compulsion to pay into pension schemes unless the crisis is tackled, concluded the report. The task force calls for pension contribution levels of about 10-15% of an employee’s salary, with two thirds of this contributed by employers.
“While employees must take some responsibility for their own pension provision, employers can and should play a major role in helping people save for their retirement,” says Davis. “We want the current voluntary approach to work and believe employers have an opportunity to build on and improve the current framework in a way that makes sense for business. But make no mistake, we are in a last chance saloon for voluntarism and unless we can reverse the current decline in employer-led pension provision and deliver increased savings from both employers and employees through the voluntary framework, the Government may be forced to look at more drastic solutions.”
Work and Pensions Secretary Alan Johnson (a former trade union official) said employers “can and should do more.” Derek Simpson, general secretary of trade union Amicus, said “the voluntary approach on pensions has failed. “If we are to stave off the growing pensions crisis, employers and workers will have to be compelled.”
But John Cridland – the deputy director-general of the employers’ organisation, the Confederation of British Industry (CBI) – disagreed that compulsion was inevitable. “The CBI strongly supports Sir Peter Davis’ emphasis on reinvigorating the voluntary pensions system,” he said. “It has delivered good private pensions for a long time. Although it is now under pressure it can deliver again. We recognise that making sure the voluntary system succeeds in the future is a huge challenge but it is one employers are committed too. They recognise the part they have to play in funding and promoting pensions. Employers should contribute, when they can afford to do so. Employer contributions have doubled to £37 billion since 1997, and are continuing to rise, but we must recognise that not all employers are able to. The report is right to recommend that the government makes pensions simpler and less burdensome for companies to provide. Small and medium-size firms would certainly benefit from this. We are in complete agreement that we have to make the voluntary system work. Compulsion is no panacea for the UK’s pension problems. As the CBI has made clear, it would be seen by many as a new tax on jobs. Individuals could also resent being forced to invest in a volatile stock market and the loss of choice to make other kinds of investment to pay for retirement. Compulsion could also lead to a levelling down, rather than an increase in pension saving and, at a cost of £22 billion, it could threaten the viability of some smaller firms.”