Pensions
Employers have traditionally played a crucial role in helping their employees save for their pension. Recent and continuing demographic changes have meant that within a decade the share of the population aged over 65 will outnumber those aged under-16. These trends have placed a great strain on the existing state pension system and the complexity and emphasis on means testing of the system actually discourages private saving. Adair Turner, chairman of the Pensions Commission highlighted that more than 12 million people aged over 25 were not saving adequately for their retirement.
The state of the UK pensions system threatens current and future taxpayers, both individuals and businesses.
Business Impact
Employers’ attitudes towards pensions have changed in recent years and as a result, provision is in decline, following the switch from Defined Benefit to Defined Contribution Schemes.
The Pensions Commission was set up by the government to review the current pensions system and make policy recommendations to improve it.
The Commission’s second report was published in November 2005 and recommended that all employees are automatically enrolled (with the right to opt out) in a new national savings plan. Individuals would pay 4 per cent contributions while employers would pay a compulsory 3 per cent contribution. The report also recommended gradually raising the state pension age, in line with increasing longevity, over 20 years from 2030 to 68 by 2050.
Employer contributions can generate a positive impact on individual participation in pension schemes, but do have an obvious financial cost to business. Businesses are keen to play their part, but some responsibility must also lie with individuals and Government and businesses must not be allowed to suffer competitively.
Chamber Position
In 2005 Birmingham Chamber’s Policy Unit established a Pensions Taskforce, consisting of specialists from PricewaterhouseCoopers, KPMG, Baker Tilly, Pinsent Masons, Hammonds and Shakespeares Solicitors to provide guidance and input to Birmingham Chamber’s response to the Pensions Commission and to help shape its position on the preferred policy options for pensions in the UK.
Birmingham Chamber supports compulsion as the most realistic way to plug the pensions gap, however it must be combined with a reform of the State system with a flat rate becoming available to all to reduce the need for means testing and remove some of the complexity of current pensions.
With appropriate regulatory structures and phased implementation, businesses will be able to cope with compulsion and it will be a huge benefit for overall savings in the UK.
There will be a trade off between employer pensions contributions and wages, so over time employees will absorb some of the cost. In a recent survey of Birmingham Chamber members, 42 per cent of respondents said they would meet the cost through freezing staff salaries.
The introduction of compulsory contributions in the private sector must be in conjunction with greater equality with the public sector and Birmingham Chamber has urged the government to address this issue as a matter of priority.
If you would like to have your say on the potential changes to pensions and how they could affect your business c.ritchie@birminghamchamber.og.uk.
If you would like to be kept up to date or get involved with the Chamber’s lobbying work policyteam@birminghamchamber.org.uk.