Bridging the pensions gap - at a cost to employers?
In October 2004, the Pensions Commission reported that an estimated 12.1 million workers over the age of 25 were not saving enough for retirement, and that major reforms of the pensions system would be needed if the retirement funding needs of an ageing population were to be met. Now, those major reforms are beginning to take shape.
White Paper recommendations
In April this year the Commission, headed by Lord Turner, made recommendations for action. These resulted in a Government White Paper.
As published, the main elements of the White Paper were as follows:
- The state pension age for men and women will increase to 66 from 2024, to 67 from 2034 and 68 from 2044, with each rise being phased in over two years
- The state pension will be made more generous, with future increases linked to earnings rather than prices
- The number of years it takes for people to qualify for a full basic state pension will be reduced to 30
- From 2012, people will be automatically enrolled into a new, low-cost national savings scheme, although opting out will be possible.
New savings scheme
Of great significance to employers is the proposed introduction of a new savings scheme, with automatic enrolment for staff and compulsory employers' contributions.
Employees will be asked to pay 4% on a band of their earnings into the new National Pension Savings Scheme (NPSS), while employers must contribute 3%. In addition, the Government will contribute 1% in the form of tax relief.
Company contributions will be phased in, in equal 1% instalments over three years and support will be offered to small businesses. Businesses which already offer a pension scheme on an auto-enrolment basis that is at least as generous as the NPSS will not be required to participate.
However, there has been criticism of the NPSS proposals, with the Confederation of British Industry claiming that they will cost businesses around £2.3 billion.
Contact us if you are concerned about any aspect of pensions or pension schemes.
