The government-appointed Pensions Commission, led by former CBI chief Adair Turner, will today deliver its report on closing the UK’s pensions black hole. HR professionals should study the recommendations closely as they are the people who will be at the sharp end of administering the changes. We look at the potential suggestions and weigh up the evidence to see what might be coming your way.
Rise in state pension age
Increasing the age from when a state pension can be claimed – alongside a rise in the basic amount given – has been hotly tipped by most observers.
The CBI is calling for it to reach 70 by 2030, although it is expected that the commission will opt for 67 by 2020. Increasing life expectancy means raising the retirement age “has to be done”, according to CBI director general Sir Digby Jones.
In 1909, there were 14 people to every pensioner, so there was plenty of money coming in to support pensions. In 2005, the ratio stands at 4:1, and it is predicted that in 2050 it will reach 2:1.
However, convincing the working public might not be easy after the government bowed to union demands and fixed the public sector retirement age at 60 for all current members.
A rise may also have a disproportionate impact on poorer people, and the insurance costs of employing older workers.
Likelihood: Might be a slow satrer, but likely to make it.
Compulsory employer contributions
This is one the unions have thrown their weight behind, but employers see it as a disaster waiting to happen.
Unions argue that the system would force employers to provide for their staff, calling for employer contributions of up to 10%. This matches levels in Australia, which already has compulsory contributions.
Employers insist that 10% compulsion would cost UK business £22bn a year. They claim that the unions have no idea where this money will come from.
Manufacturing group the EEF has put its head above the parapet to support compulsion, although it believes an initial 2% would be fairer. But word is that Turner agrees with the employer majority on this one, as does the government.
Likelihood: Probably won’t get out of its comfy chair.
Auto-enrolment into pension schemes, with limited time to opt out
This system – a version of which has worked well in New Zealand – has widespread support. The present system of asking new starters to opt in to schemes if they want to isn’t working. Department for Work and Pensions figures show more than four million staff have the option to join a fund and have not done so. Experts say that in most cases this is more down to inertia than an inability to pay, so it is pretty much a dead cert.
Likelihood: Fit as a fiddle and raring to go.
While everyone agrees something needs to be done fast, the commission’s report will only be the beginning of political wrangling and long discussion. The government has said there will need to be a national debate on the subject and has hinted that it could take at least another parliamentary session to get a consensus.
Work and pensions secretary John Hutton is the sixth person to hold the post since 1997. This high turnover has raised doubts about the political will to drive through difficult reforms.
Likelihood: Long-in-the-tooth, but still a contender.