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Phillipa
Veteran Investor
Joined: 05 Feb 2005
Posts: 419
Cash Points ££ 3383.78
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 Posted: Tue May 23, 2006 9:31 pm Post subject: Goverment Pension changes coming - 3% employer min cont... |
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Firms face £2.6bn bill for extra staff pension contributions in government white paper
· Companies required to pay minimum 3%
· Employers advised to pass on compulsory new costs
Employers face an additional £2.6bn in staff pension contributions, according to a leak to the Guardian of the government's white paper on pensions.
The white paper, which is due to be published this week after months of wrangling and at least eight drafts, suggests that as many as 7 million people are not saving enough for a pension. A three-year transitional package, designed to help employers, is being proposed.
A central plank of the white paper is a requirement on employers to contribute a minimum 3% if the employee decides not to opt out of a proposed new national pension savings scheme. The employee will contribute 4%, with the state contributing 1% as tax relief. For an employee on £23,000 a year, an employer's contribution of 3% of earnings would be the same as adding 26p to the hourly wage.
Employers have been resisting the proposal for compulsory contribution, but the white paper suggests 988,000 employers are either offering no help to staff pensions, or contributions of less than 3%.
The white paper states: "The powerful and persistent barriers ... include inertia, financial myopia, the cost of pension saving and the complexity of the decisions involved." It insists that a compulsory employer contribution is necessary because without it "participation rates would be significantly lower". It suggests that the extra costs could be handed on by companies through higher prices or lower future wage increases.
The four central planks of the white paper are: restoring the link between earnings and the basic state pension from 2012; a phased increase in the state retirement age in line with life expectancy from 2020; a new deal for women pensioners; and the new national pension savings scheme.
The £2.6bn additional employers' contributions is based on a rate of participation, or opting into such schemes, of about two-thirds of staff, and represents a 0.6% rise in their labour costs; for firms with fewer than 50 staff, the additional contributions would be closer to a 0.9% rise in labour costs.
The white paper proposes that if employers do not cooperate with the new automatic enrolment scheme, an enforcement regime similar to the national minimum wage regime will be imposed.
Automatic enrolment will be introduced for all employees over 22 into a personal account when starting work. Employees will be automatically enrolled when changing employer, and then every three years should they initially opt out and continue to work for the same employer.
The white paper estimates that by starting automatic enrolment at 22 and at the point when earnings reach a £5,000 per annum threshold, 10 million employees will be eligible for enrolment, including many part-time workers.
The level at which the employee will be enrolled to save in the scheme could be automatically increased at every pay rise. Schemes in the US have led to increases in average savings rate from 3.5% to 13.6%, the white paper says. Automatic enrolment will not apply to the self-employed, those not in paid work, those over state pension age and anyone under 22.
The white paper proposes two alternatives for administering the national pension savings scheme. Under one proposal - advanced by the government's Pension Commission, chaired by Lord Turner - all personal accounts would be provided by a single organisation.
more here ....
http://money.guardian.co.uk/pensions/story/0,,1780264,00.html |
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