CBI to emphasise need for strong government backing if pensions plans are to succeed

Employers will need strong support from the government if its White Paper pension proposals are to succeed, the CBI will announce today.

Richard Lambert, director-general of the CBI will say that the proposed legislation, which includes automatic enrolment and compulsory company contributions, will be difficult for small businesses to adopt and could undermine existing pension schemes.

Speaking at the Labour Party conference in Manchester, Lambert will urge John Hutton, secretary of state for work and pensions, to ensure cost increases and administrative burdens are kept to a minimum.

The CBI proposes that the level of compulsory employer contributions be fixed at 3%, with a reduction for the smallest firms, and a six-month waiting period before employees are automatically-enrolled into schemes.

Lambert will tell the conference: “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. Many smaller firms will find the sheer cost of compulsion difficult to absorb and they will need targeted financial support.

“Our proposals would give £850m of support to small firms for the benefit of their employees. This is a fraction of the £4bn a year windfall the government will save by ending the contracted-out rebate for defined contribution schemes.”

The CBI’s submission to the government’s pensions White Paper calls for a package of proposals including:

Phasing in compulsory employer contributions over three years, with a government commitment to firms not to hike-up the level by fixing it at 3% of an employees salary.

Time-limited financial support for employers with less than 50 staff through reduced compulsory contributions – 2% of salary (down from 3%).

Minimising the administrative and cost burden on employers via a six-month waiting period before employees are automatically opted-in, with auto-enrolment starting at 25. This would apply to both existing and new pension schemes. There should also be a simple ‘good scheme’ test so employers can offer their alternative without having to jump through hoops.

Deregulating and simplifying occupational pension rules so firms are encouraged to continue offering their own good quality pension schemes. government should also consider incentives for employers who offer top quality schemes.

Making employees, not firms, responsible for choosing their pension provider unless employers wish to do so. There should also be a ‘central clearing house’ so that employers have a single point of contact for dealing with administration.

A government commitment to a ‘light-touch, risk-based’ enforcement regime aimed at tackling likely offenders, based on the successful model adopted for the minimum wage.

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