Lord Turner's proposals for a nationalised savings plan, into which employees will automatically be enrolled but will have the right to opt out, are aimed at getting more workers to make private pension
contributions.
But if accounts from both sides of Whitehall are correct, while the system will remain voluntary for employees it will be much less so for
employers. If the employee decides to remain in and contribute his or her minimum 4 per cent, Whitehall sources say, the employer will have to contribute 3 per
cent.
That brought a predictably alarmed reaction from small and medium-sized enterprises yesterday. Stephen Alambritis of the Federation of Small Businesses said it backed auto-enrolment of employees. "But small businesses do not have the elasticity to make such contributions - particularly one as big as 3 per
cent.
"What you would see is some people being laid off, or new staff not being taken on. Small business already takes massive heat in terms of tax and
regulation."
The proposal could run as far as requiring families who employ nannies to contribute if they stay enrolled in the new scheme, although whether the self-employed will also be included is not yet
clear. Despite the protestations from small businesses, the dilemma for those making policy is that the pensions savings gap is largest among staff in smaller
businesses.
Figures published in the Pension Commission's interim report show that while 53 per cent of all employees in the private sector take part in employer- sponsored pension schemes, the figure is 60 per cent for large companies, only 44 per cent for medium-sized ones and a mere 29 per cent for small businesses with fewer than 50
employees.
The move would still mean that, if employees stay in the "Britsaver" in large numbers, hundreds of thousands of small companies that do not contribute to pensions now would have
to. For those that already do, a 3 per cent contribution would not be a problem. For final salary schemes, employers typically put in about 15 per cent of salary. Even for the money purchase pensions that are replacing them as employers try to cut pension costs, the average contribution is 6 per cent to 7 per
cent .But Sir Digby Jones, director-general of the CBI employers' body, said that compulsion for small businesses was a "tax on jobs" that would diminish the chance of employing
people.
What really worried him, he said, was that the unions would up the ante and try to get employers to pay more than 3 per
cent. "I can hear the trade unions saying: 'We're going to campaign for four playing five [employers paying 4 per cent and employees paying 5 per cent], then we're going to campaign for five playing five'. Then it's going to be: 'Those nasty employers are going to have to pay more than the hard done by
employees'.
"The proposal got a much warmer welcome from the EEF, the manufacturers' organisation. Many of its members provide pensions, and it wants to stop those who do not undercutting those who
do.
"We favour this sort of soft compulsion," said David Yeandle, its deputy director of employment, "but only if it is an integral part of a much wider package that includes a higher basic state pension, the end of contracting out and a much simplified regulatory regime." In September, the EEF proposed a 2 per cent compulsory employers' contribution, to be matched by employees, starting in 2015 and rising to 4 per cent apiece by 2025. But while there will be debate over who should pay if the commission's reported proposal is adopted, Lord Turner is clear that in the long run it will be
employees.
He told the Trades Union Congress in September: "There is a wealth of economic theory to suggest that in the long-term compulsory employer contributions will be at the expense of cash wages." In Australia, the only large developed country to introduce compulsory private saving in the past two decades, higher pension contributions had been traded off against wages in an agreement between government, employers and the unions, he
said.
The government's decision to allow existing public sector workers to continue to retire at 60, rather than raising the age to 65, was "disgraceful, cowardly and frankly the nation can't afford it", Sir Digby added.
