Sensible compromise will tackle pensions timebomb

Todayís pensions White Paper represents a sensible compromise that should help to address the timebomb created by a pension system that was not keeping pace with changing demographics, according to the Chartered Institute of Personnel and Development (CIPD).

No evidence of NPSS leading to ìlevelling downî:
Fears from some quarters that the proposed NPSS will lead to a ìlevelling downî by employers who currently offer more generous pension schemes are also unfounded, according to a CIPD survey of over 1000 employers. The survey found:

UK employers are twice as likely to say that the proposed 3% employer contribution towards occupational pensions is too low as say it is too high.

Only 1% of employers will opt for the NPSS to cut costs. The vast majority (81%) of employers have no intention of changing their existing pension arrangements.

The only exception to this finding was amongst the smallest employers (those employing less than 25 people), so the proposal to subsidise compulsory contributions for smaller employers is another welcome compromise.

Charles Cotton, CIPD Pensions Adviser, said:
ìPeople are becoming increasingly savvy about the package of rewards available to them from different employers. Good employers already offer decent pensions. But poor financial literacy among the general public means that bad employers have been able to get away with offering nothing for far too long. The proposed NPSS will level the playing field, but our research shatters the myth that the scheme will drag down the level of existing employer pension contributions. It would make no sense for employers competing to attract staff to cut pensions to minimum levels.

ìThe recognition enshrined in the NPSS proposals that employees should make additional pension contributions unless they explicitly opt-out is also a welcome new development. As we live longer, and our expectations of retirement rise, it is essential that we all recognise that we have some responsibility for providing for our own retirements.

ìThe proposed employer contribution subsidy for smaller employers is welcome. However government should also look to compensate employers for this compulsory contribution by reducing the financial burden of red tape in other areas.î

Retirement age:
The only major anomaly, according to the CIPD, is the continuing refusal of government to abolish mandatory retirement ages altogether. The Governmentís current policy of a default retirement age of 65 is at odds with plans to raise the state pension age to 68.

Charles Cotton, CIPD Pensions Adviser, said:
ìAn ageing population combined with enduring skills shortages makes it illogical for employers to be able to retire people purely on the basis of their birth date. Many people want to keep working beyond the age of 65. With the state pension age now certain to rise incrementally, it is barmy that employers will still be able to get rid of people on the basis of age rather than performance.î