Filling the savings gap

Should employers be able to force staff to join pension schemes?  Simon Kent reports

Keith Astill
Head of corporate personnel, Nationwide

Nationwide agrees that effective action is needed to encourage people to
save sufficiently for retirement. We cannot pretend, however, that it will be
easy to persuade all employers that it would be in their interests to make
scheme membership compulsory, however supportive they may be – in theory – of
people making better provision for retirement.

Many employers are already struggling to maintain good quality occupational
schemes, and may feel that making all employees join will only increase those
costs, which may result in the accelerated closure of schemes.

If compulsory membership is merely an option rather than an obligation for
all employers who run occupational schemes, the proposal has much merit.

Many employers will wish to ensure their staff have access to the best
pension schemes affordable. But if compulsory membership is introduced
alongside other initiatives, such as concurrent membership of other types of
savings or pension arrangements, then employers may be able to continue with a
slightly less generous form of defined benefit scheme, such as Nationwide’s
Career Average Revalued Earnings (CARE) plan.

It is often argued that the low-paid cannot afford contributions to an
occupational scheme. There is never an easy solution to this problem, but we
believe that as long as contributions are deducted from pay at source, pension
scheme members can make appropriate personal budget adjustments.

This, of course, was the position prior to the abolition of compulsory
schemes in the late 1980s. There cannot be sensible pension provision without
some immediate financial strain. To pretend otherwise would be disingenuous.

We will either improve the pensions of our national workforce, or we could
pretend it will improve by using terms of encouragement alone. The latter
course of action has already proven a failure, with the identification of a
huge savings gap.

It would be entirely possible to sweeten the pill for low-paid members by
allowing them a higher rate of pension tax relief – such as long-term savings
contributions, as opposed to the tax relief allowed on the more readily
accessible accounts, such as ISAs.

Keith Galliford
Divisional director, RebusHR

The current proposal would reinstate
the situation removed by Parliament in the 1980s, whereby employers could make
it a condition of employment that staff joined the company pension scheme. Such
a move would kick-start people to consider their retirement, and would be
beneficial provided that both employee and employer contributions are pitched
at reasonable levels.

Although many will criticise this as a curtailment of free
choice, experience indicates that in the absence of compulsory schemes,
individuals do not commit to long-term pension investment. This is particularly
true in periods of falling stock market values.

Stella Eastwood
Head of pensions policy, BT

The difficulty with compulsory
membership is that many employees choose not to join employers schemes for
valid reasons.  They may have other
financial priorities, for example, or have chosen an alternative way of
providing for their financial security in retirement.  

Another issue, is that the introduction of compulsory
membership may in fact cause many employers to reduce future benefit provision.
This would not be a problem for BT, as we have always experienced a very high
take-up rate for our schemes. But for other employers, where the take-up has
been far lower, the additional cost of a significant increase in scheme membership
could easily prove too much to bear, and have the opposite effect to that

Ian Booth
Deputy director of HR, National Children’s Homes

NCH has a contributory superannuation
scheme which all employees can join. Scheme membership is voluntary, and we do
not believe that it would be desirable or appropriate to make membership

NCH has recently reviewed its pension scheme, which included
consultation with the employees’ representatives, and it was not suggested at
any point that the scheme should have compulsory membership.

Steve Harvey
Director, people, profit and loyalty, Micosoft UK

I don’t think our employees should be
forced to pay into a pension scheme, because they are bright, intelligent
people, and we are lucky to hire them. What we can do, is make them financially
aware, and then leave it to personal choice.

We’re going down the flexible benefits route – we want to offer
benefits which fit in with that specific part of our employees life-cycle at
that time. We want to put our employees in control of their own lives. A big
part of that is the ‘work-life balance’, but it’s also how we educate people,
and how they manage stress in their lives. And part of that commitment is
making sure financial stress doesn’t exist.

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