UK Group Says Pension Proposal Could Undermine Generous Employer Contributions

March 16, 2007 ( - A UK pensions trade group said that offering workers a government pension scheme when they already have a workplace plan to which their employer contributes, could be a disincentive for employers to offer generous schemes, according to British newspaper The Guardian.

The National Association of Pension Funds (NAPF), which represents employer-sponsored pension schemes, said Thursday that the government’s plan to enroll millions of workers in a national pension savings scheme (See  UK Issues Formal Pension Reform Proposal ) should not be offered to workers who already have access to a pension where there is already an employer contribution.

Under the national pension savings scheme – part of the plan to reform UK pensions – contributions from both companies and workers would be required starting 2012. The proposal recommends employees earning up to 33,000 pounds a year should contribute 4% of their wages to the plan, with their employer contributing 3%. The government would add 1% through tax relief.

“There is a risk … that if the personal accounts scheme is poorly targeted the many millions who are currently saving in today’s high-value workplace schemes may receive smaller pensions,” the NAPF said in a paper at its annual investment conference in Edinburgh, according to the Guardian. According to NAPF, UK ministers said last year the scheme could be extended to cover up to 10 million workers without a pension, but the group is suggesting that figure be scaled back to 7.5 million workers and exclude those with existing schemes.

The group further warned that if the proposal is passed by Parliament, employers offering good pensions today could “choose to place new recruits and/or existing employees who are not currently in their scheme into personal accounts at a lower contribution level than is presently the case.”

The press release from NAPF is here .