Pension reforms 'spark job fears'

22-06-2005

One in five firms will cut jobs if they are forced to pay into pensions for their employees, a British Chambers of Commerce (BCC) survey has suggested. The survey of 800 businesses, mostly small and medium-sized firms, also said over a third would have to freeze wage increases to fund compulsory payments.

The BCC said financial incentives were needed to encourage and enable firms to make pension contributions.

An estimated 12 million people are not saving enough for their retirement.

The government-appointed Pensions Commission is currently examining options to tackle the UK's pension problem. The commission is due to produce its final report in the autumn.

'High price'

In its interim report last year, the Pensions Commission said that a combination of higher taxes, higher savings and/or a higher-average retirement age was needed.

One way of raising saving levels is to introduce an element of compulsion, forcing either employers or employees to pay into pension schemes.

However, the BCC said its survey showed that forcing firms to pay could cost jobs.

"Forcing employers to contribute towards pensions would come at a high price both for businesses and their employees," said BCC director general David Frost.

"Compelling employers to pay into pension schemes would simply increase the cost of employing someone and it is clear that some firms would be forced to reduce the size of their workforce to meet this cost."

Business incentives

The BCC added that firms were already struggling to fund pension provision.

It said its survey results showed that 57% of firms who do not contribute to their employees' pensions say they cannot afford to do so.

Of these, three quarters were companies who employed less than 50 people.

"We will continue to press the government to introduce some form of additional financial incentive to encourage and enable small businesses to provide pension contributions," Mr Frost said.

"Indeed, more than half of firms that do not currently offer a contribution say that such a move could persuade them to do so."

Encouraging individuals

The BCC also said that the government should do more to encourage individuals to save for their retirements.

It said its survey found that 55% of firms who made pension contributions of between 5% and 10% had failed to sign up more than half of the workforce to their schemes.

"We now need to see real measures to encourage more people to pay into pensions," said Mr Frost.

This could include more information about the benefits of pension saving, more use of automatic enrolment in company schemes and a simpler state pension system, Mr Frost said.

On Thursday, the Association of British Insurers (ABI) said that all workers should be automatically included in their company pension schemes, although they could opt out later if they wished.

The ABI also called for tax breaks for firms where at least two thirds of staff are members of the company pension scheme.

Under the proposal, employers would receive a refund of their national insurance payments in return for making contributions to the workplace pension scheme.

BBC News

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