Pension plan will eat into profits of all companies

Teachers took to the streets in protest over pensions
Teachers took to the streets in protest over pensions

BRITAIN’S bosses believe they will face significant cost increases when they are forced to set up pension schemes for all their employees.

Auto-enrolment pensions are starting to be rolled out next year (2012) and every company – including those with fewer than 10 employees will have to set up a scheme.

The government believes auto-enrolment is a way of ensuring people have enough to live on after they retire.

The Institute of Directors (IoD) has surveyed its members who are concerned about how they will meet the three per cent contribution of employees’ salaries into the new arrangements.

One third expect it will eat into profits while 57 per cent believe it will impose a very high or high time burden.

The IoD survey also revealed that the burden is likely to fall hardest on small firms. Some 95 per cent of firms that do not have any pension arrangements for employees are SMEs.

Small firms are in for a shock in the next few years, lacking as they do specialist human resource functions and already struggling to cope with existing employment law obligations.

Miles Templeman, director-general of the IoD, said: “Of course we need to improve retirement provision in the UK, but yet again it’s the small entrepreneur who is hit.

“Since the government isn’t prepared to change course on what’s essentially a major piece of employment regulation, it needs to compensate for this burden with an equally significant deregulation elsewhere. Phasing in auto-enrolment buys us some time, but the private sector can’t be expected to bounce back and create new jobs in the longer run if the government keeps dropping new cost burdens on firms.”

The IoD also found that 20 per cent of employers are not aware that there will be legislation, commencing in 2012, that requires them by law to enrol employees who earn over the income tax personal allowance, into a pension scheme and to make contributions on their behalf.

Employees will have the right to opt out and some people think that the requirement to pay in four per cent of band earnings will put many people off.

Economist Dr Ros Altmann, director-general of over-50s lifestyle organisation Saga, has lobbied for the word ‘pension’ to be phased out in a new drive to encourage long term savings. She believes the word ‘pension’ is now a mistrusted brand.

Dr Altmann said: “It’s simple. There is not enough money to cover the basic lifestyle aspirations of a population with ever-increasing life expectancy. There is nothing like enough money to cover the cost of care... and the word ‘pension’ has become so negative that people simply don’t believe there’s any great benefit to be had by paying into one.”