Accordsing to the TUC’s latest report, ‘Prospects for pensions’, Britain’s pensions crisis will not be overcome unless employers make compulsory contributions to occupational pensions, and workers join the company scheme as a condition of employment. The report accuses employers of giving-in to a ‘herd mentality’ in shutting down final salary pension schemes. And calls on both bosses and the state to live up to their responsibilities on pensions.
The report reveals that more than half of Britain’s workforce are not in an occupational pension scheme. And in the past 10 years those covered by final salary schemes has dropped by nearly two million to 3.8 million. These statistics show that Britain’s pensions crisis is not new, but has been growing for a decade. However the introduction of the new accounting requirements, MFR and FRS17, have enabled employers to accelerate the closure of final salary schemes.
Other key points from “Prospects for pensions”
– All workers should have access to a quality pension whether provided through a final salary, defined contribution or stakeholder scheme.
– The UK’s pensions system has always been based on the principle that responsibility for retirement provision should be shared by the state, employers and individuals. The present problems are a result of a retreat from pension provision by the state and employers.
– Final salary schemes are fast disappearing from the pensions landscape. In large measure this is because employers’ contribution holidays have now come to an end.
– The government has made some progress in addressing the weaknesses in the pensions system. But more remains to be done as can be seen from the three reviews (Pickering, Sandler and the Inland Revenue) that are currently in progress
– In the sprit of shared responsibility, consideration must be given to introducing compulsory employer contributions to occupational pensions. As a quid pro quo, employers should be enabled to make pension scheme membership a condition of employment for employees.
– Workers on modest incomes may find it hard to maintain their current commitments and save for a pension. Consideration should be given to fiscal incentives, including a pension tax credit, to make saving more affordable for lower paid employees.
The CBI is backing TUC calls for a national pensions debate but warned that the union body’s proposals would accelerate moves away from more expensive pension provision. The employers’ organisation said the challenges facing pension providers were largely caused by the fall in equity markets and the resulting negative impact on pension scheme values. Many employers are having to find new ways of meeting future commitments to staff, which involves looking 40 years ahead.
John Cridland, CBI Deputy Director-General, said: “Employers do not want to offer lower pensions to their staff. But they must protect the long-term security of both their businesses and the pension scheme. It is naive to believe that stock markets can fall with no impact on pension provision. This really must be recognised before measures to stabilise this situation can be considered.”
The CBI has been lobbying for measures to make pensions more attractive to employers. Proposals include:
– simplification of pension regulations after years of red tape
– improved tax treatment to address the £5 billion taken by the government with the removal of dividend tax credits
– review of the new accounting standard FRS17, which exacerbates the problem.
