UK businesses will have to contribute towards their employees’ pension account, the government has announced today.
Under the reform, employees will pay 4% of their salaries into their National Pension Savings Plan pension account, with businesses forced to contribute a further 3%.
Employers will receive 1% in tax relief, but it’s estimated the reforms will cost UK business around £2.6bn.
The contribution made by employers will be capped on salaries above £33,000.
The radical overhaul of the UK pension system will also see a rise in the pensionable age for men and women to 66 in 2024, 67 in 2034 and 68 in 2044.
However, those currently under the age of 47 will remain unaffected by the changes.
It was also announced that the link between pensions and earnings will be restored by 2012, a move that caused the recent argument between the prime minister Tony Blair and the chancellor Gordon Brown, who was concerned about the financial impact the move would have on the treasury.
The reforms are as a result of Lord Turner’s pensions White Paper.
CBI director general Sir Digby Jones, said: “The business community welcomed the Pensions Commission’s final report and the White Paper provides a sustainable long-term settlement on pensions.
“But there will be anxiety amongst the business community that the Government is forging ahead with compulsory employer pension contributions despite the potential damage it could inflict on firms, particularly smaller ones.”
