The UK employers’ organisation, the Confederation of British Industry (CBI), has expressed misgivngs about the proposed establishment of a UK equivalent to the Pension Benefits Guaranty Corporation (PBGC) in the United States.
In a letter to Secretary of State for Work and Pensions Andrew Smith, the CBI said the proposals would accelerate the move away from defined benefit schemes, further destabilizing pension provision and undermining business commitment.
Under the proposed fund, firms operating defined benefit pensions would be charged a compulsory levy to establish a compensation scheme. This scheme would protect employees whose firms have gone out of business and cannot meet their pension obligations.
But the CBI argues that the business levy risks undermining business confidence in this area by penalising prudent companies who already fully provide for their employees by also making them responsible for those companies who do not.
The soon to be published CBI-Pertemps Employment Trends Survey for 2003 shows that half of all the companies questioned closed their defined benefit schemes in 2002.
This new levy would further exacerbate the situation by imposing additional costs of at least 375 million each year on companies continuing to operate defined benefit schemes.
“There is widespread concern that responsible employers with well-funded pensions schemes will be forced to subsidise companies with less well-funded schemes,” says John Cridland, CBI Deputy Director-General. “At a time when defined benefit pensions are already declining at an alarming rate, this business levy would further destabilise pension provision rather than strengthen it. Nothing will be gained if companies reduce employee pension benefits to afford the government’s levy or if they close final salary schemes all together.”
Employers already pay on average three times as much into pension schemes as employees. The CBI believes there is a strong case for pension schemes members to be involved in the financing of the pensions protection fund, as they are the ones who would benefit from it.
“The government has made clear it will not act as a guarantor for the pensions fund, but is asking business to do so,” adds Cridland. “As employees are the ultimate beneficiaries of pension schemes, it is surely not unreasonable to expect them to contribute to secure their futures.”
The CBI is consulting its membership on the pensions protection fund and will publish its detailed reaction in early Autumn.
A CBI Focus on Investment Report last month showed the growing pensions deficit has now reached 160 billion, a “black hole” that will hit profits and hinder investment.