Lord Turner calls on employers to engage in pensions debate

Lord Turner, head of the Pensions Commission, has called on employers to get involved in a sensible debate over compulsory pension payments for staff, instead of simply branding it as unacceptable.

Last week, his report on solving the UK’s looming pensions crisis was greeted with dismay by businesses after he recommended the creation of a National Pensions Saving Scheme (NPSS), which would force all employers to pay into staff schemes.

But Turner told Personnel Today that to find a solution to poverty in retirement, employers needed to “get engaged, rather than just saying it’s not viable”.

Under the proposals, staff would automatically pay in 5% of their earnings, topped up by another 3% from employers. Turner envisages that the scheme would start no later than 2010.

But employers groups said this would lead to job losses and would be viewed as a tax on employment.

Miles Templeman, head of the Institute of Directors, said the government should ignore this recommendation as “the burden of pensions on employers is already high enough”. And professional services firm Deloitte estimates that the NPSS would cost business £4bn a year.

However, Turner said the contribution levels had been deliberately chosen to be big enough to make a difference to individuals, while having a relatively low impact on business.

“In the long run, the cost won’t be that big, because cash wages will be lower to compensate,” he said. “Unions shouldn’t kid themselves that wages won’t be affected.”

He also said that companies would see significant benefits through tax relief and reduced National Insurance payments the more they paid into the schemes.

He warned that contributions were set at a level where it would be difficult for employers to encourage staff to opt out of the scheme in return for another benefit.

“The temptation for employers to shepherd employees away from it will depend on how large their contribution is,” he said. “At 3%, it’s not worth the employers’ time as they would not be able to make [another benefit] attractive enough to staff.”

HR will also have a key role to play in banishing ageism at work as the average age of the UK workforce continues to rise, said Turner.

“Companies are getting rid of people because their policy says they have to go at retirement age. This is a ludicrous waste of talent,” he said.

How would the NPSS work?

Objectives in principle:

  • Strongly encourage individuals (and employers) to provide for a pension.

  • Enable all people to have the opportunity to save for a pension at low cost.

  • Overcome inertia and other barriers to saving.

Recommended way forward:

  • All staff are automatically enrolled into funded pension saving, with the right to opt out. A ‘modest’ compulsory matching employer contribution into either a high-quality employer pension scheme or a newly created NPSS.

  • Minimum default contributions set at about 8% of gross pay between around 5,000 and 33,000:
    4% out of individual post-tax earnings
    1% paid for by tax relief
    3% compulsory employer contribution.

  • Contributions collected via PAYE system or a new pension payment scheme.

  • Additional voluntary contributions by both employees and employers to be encouraged.

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