Pension reform reassurances fail to convince employers

A last-ditch attempt by the government to reassure employers that the cost of pension reforms will be controlled has failed to ease their uncertainty, according to pensions experts.

In last week’s Pensions White Paper, the government confirmed that businesses without suitable occupational schemes will have to pay into the New Scheme of Personal Accounts (NSPA) –previously known as the National Pensions Saving Scheme – on behalf of their staff.

By 2012, these companies will have to contribute 3% to the scheme, while staff give 4% and a further 1% is added through tax relief – which could cost employers an extra £2.3bn a year, according to the CBI.

In a bid to reassure businesses that the cost of the scheme will not spiral, the government has promised to root the NSPA contributions in primary legislation.

David Yeandle, deputy director of employment policy at manufacturers’ body EEF, said it was very important that the NSPA figures go on the front of the new Pensions Bill. “This will make them much more difficult to change, and we will not have the situation we have with the national minimum wage,” he said.

“The initial fears were [the NSPA contributions] would be ratcheted up in the future,” he added.

But pensions experts said once the principle of auto-enrolment in the NSPA was in place, it would be easy for future governments to push up  employer contributions.

“The government has tried to reassure companies by saying the 3% will be in the Act, not just set by ministers in regulations,” said Donald Duval, chief actuary at Aon Consulting. “However, this is unlikely to be very reassuring. Tax rates are set in the Finance Act, and this doesn’t stop governments changing them all the time.”

Deborah Cooper, principal at Mercer HR consulting, said changing primary legislation was time-consuming, but far from impossible.

“The government changes things day-by-day,” she said. “This doesn’t mean it’s set in stone at all.”

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