UK Pension Commission Proposal Suffers Another Attack

February 21, 2005 (PLANSPONSOR.com) - The Confederation of British Industry (CBI) on Monday entered the melee over the UK Pension Commission's answer to a pension system strained by retiring baby boomers.
By PS

The proposal last November by the commission called for automatic enrollment in the national pension scheme and ignited staunch opposition from those reluctant to force employers to pay into employee pension plans. The employers’ organization contended  in a statement that forcing employer contributions would raise labor costs, perhaps crippling smaller firms less able to absorb the weight.

John Cridland, deputy director-general of the CBI, argues that automatic enrollment is a good way to break the “inertia about pension provision among employers and employees,” but forcing them into submission is not the way to go.

The Pension Commission, chaired by Adair Turner, suggested a National Pension Savings Scheme (See  UK Pensions Commission Releases Recommendations ) should be set up, using existing tax systems to channel money to a series of big, low-cost funds into which employees and firms would contribute.

The report, among other things, also called for employees to be automatically enrolled in the pension scheme (See UK Commission Favors Auto Enrollment ), urging employees to pay a contribution of 55% of gross annual pay above ?5,000 and employers to pay at least 35%.

CBI counters this suggestion by outlining a plan that recognizes that different sized companies will feel varying effects, and which would allow employees to opt of paying into the plans. “The CBI believes there must be an equal right to opt out (of pensions) for both business and employee so individual economic realities can be taken into account,” Cridland said. “Our proposals are designed to cajole employers, not compel them, into voluntarily contributing to an employee pension saving scheme.”

The CBI plans calls for firms should create a “pension builder” scheme, into which companies would pay in 3% of a worker’s salary and the individual would pay 5%, some of which would be funded by a one-off transfer of part of an annual pay rise, the CBI said, deflecting the danger of higher pay claims to compensate for pension contributions.

For smaller businesses, the CBI plan would require them to pay in contributions equal to 3% of salary but 1% of this would be absorbed by the state.

-Adrien Martin

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