CBI stresses the urgency of pension reform to tackle the issue of under-saving now

The industry body claims failing to tackle the issue of under-saving for a pension now will cost Government, employers and employees more in the long term.

But the group warned simplification of the reforms is essential if the rules are to be easy to comply with for the smallest firms and for firms bringing large numbers of people into pension-saving for the first time.

From 2012, employees will be automatically enrolled into a pension scheme, with their employer contributing a minimum of 3% into the fund, and the Government is introducing the National Employment Savings Trust (NEST) as an alternative for employers that do not set up their own pension scheme.

The CBI said it preferred simplification of the rules to an exemption for ‘micro-businesses’ as firms that employ fewer than five staff make up 95% of businesses. Most of these firms currently offer no pension provision, so an exemption would mean the reforms fail to tackle the underlying problem of too few people saving for a pension, which Lord Turner identified in his 2006 report.

Instead, the CBI would like to see a sweeping programme of simplification. New, straightforward rules and a high quality NEST scheme will help all employers deliver the aims of Turner, where employees also contribute.

Katja Hall, CBI director of employment policy, said: "With an ageing population, more people need to save for their old age or the taxpayer will end up footing the bill. Automatically enrolling people into pension schemes is the right thing to do, but the reforms must cover all employers and be easy to implement.

"We must avoid creating a two-tier pensions system, where a huge number of employees are still left uncovered. Everyone needs to save for their retirement. These reforms should be treated in the same way as other new employment rights, like the minimum wage, where the same rules apply to all.

"Although some improvements have been made to the Government’s plans, they are still too rigid and inflexible and include unnecessary red tape. Firms need 18-24 months to comply with the new regulations so will have to start preparing from October this year. We need clarity on this critical issue, and soon."

Rules requiring new staff to be auto-enrolled from day one could discourage employers from bringing new staff into their existing pension schemes.

The CBI is calling for auto-enrolment to kick-in only three months after someone has started a job. This is to avoid people on short-term assignments – who might want to maximise their income – being auto-enrolled, and to cut down the cost to employers of auto-enrolling staff only for them to opt-out after a short period.

Hall added: "The reason for auto-enrolment is to harness inertia, and the power of inertia is not lost with a three-month enrolment window. CBI members currently operating a waiting period before automatically enrolling staff into benefit schemes report low opt-out rates."

This article was first published on hrmagazine.co.uk