Employers will be obliged by law to contribute towards their staff’s retirements if the government’s latest policy announcement on pensions becomes law.
Plans to automatically enrol employees into a new pension scheme were unveiled in a White Paper yesterday.
The Secretary of State for Work and Pensions, John Hutton, outlined plans for the creation of new ‘personal accounts’ for employees, to which employers will be obliged to contribute.
The government wants all workers not in occupational pension schemes to be enrolled in the new schemes by 2012.
Staff will pay in 4% of their salaries into the schemes and employers 3%, with the government providing an extra 1% in tax relief.
Trade unions welcomed the proposals as an encouraging step forward for employees.
“Today's proposals are to be warmly welcomed. Employer contributions are a major gain for people at work,” said Brendan Barber, general secretary of the TUC.
Currently, only 39% of the working age population are members of a private pension scheme, the TUC says.
EEF, an industry body for manufacturers, has also expressed support of the changes, commenting that the personal accounts system will simplify proceedings for both employers and employees.
However, the EEF expressed disappointment that the government did not recognise the cost of the personal accounts scheme for smaller employers.
“By ignoring the need for some form of initial financial assistance for smaller companies, the government runs the risk of failing to gain their active support for personal accounts,” said Martin Temple director general of the EEF.
Manufacturer Alan Sykes, a managing partner of Ablemail Electronics, which produces electronic components for the automotive industry says that he has already had to reduce the number of employees at his company because of regulatory obligations.
“This is the latest tax on employment from the government, I can’t see how smaller businesses can grow given that they are made to pay at every opportunity,” he said.
© Crimson Business Ltd. 2006