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Employers not spooked by national pension scheme. By Dawn Smith

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27th Feb 2006
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A new survey explodes the myth that UK businesses would cut their pension contributions after the introduction of a National Pensions Savings Scheme (NPSS). The survey of almost 1,000 UK employers, by the Chartered Institute of Personnel and Development (CIPD), shows that the vast majority of companies (81%) have no intention of changing their existing pension arrangements in the light of Lord Turner's Pensions Commission proposals for a compulsory national scheme. Under those proposals, employers would be forced to contribute 3% of salaries to the NPSS for staff who chose to join the scheme. Employees would contribute 5%.

The CIPD survey found that not only will most employers keep up their current contributions, but only 1% will opt for the NPSS to cut costs, and '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.'

These findings contradict the assertion made recently by the CBI, in its published response to Lord Turner's proposals, that the compulsory scheme would lead to companies levelling down their contributions. 'Higher take-up rates will increase costs for the majority of employers and many will feel forced to level down their contributions towards 3% in existing schemes,' said the CBI last week. 'There is a real risk this figure could become the norm, not the floor, for contributions - and compulsion could provoke a longer term shift away from tailored occupational provision.'

As well as throwing doubt on this assumption, the CIPD research also found that most small businesses with between 25 and 99 staff already contribute to a pension fund, and that pension provision for organisations with between 25-249 employees compares with the largest organisations. This debunks the myth that small companies don't contribute to pension schemes, says the CIPD. It also challenges the CBI's view that small businesses generally will be hard hit by compulsory pension contributions.

However, there is some grist to the CBI's mill. The CIPD survey found that very small firms employing fewer than 25 staff are concerned about the impact that the 3% employer contribution will have on employment costs. This suggests the CBI may be justified in its view that the national pension scheme could be unaffordable for smaller firms who do not have a pension scheme, and that it may force some to fold.

Overall, however, the CIPD survey shows that 'the vast majority of UK employers will not be affected [by the NPSS] in the way that many critics would have you believe,' says Charles Cotton, CIPD Reward Adviser. 'In fact, the overriding view among some of our sample is that Lord Turner has been lenient on employers. This suggests that Lord Turner has struck a sensible balance with the setting of minimum standards.'

The CIPD survey will be available online in March on the CIPD website. The CBI's objections to the NPSS, contained it its response to Lord Turner's Pensions Commission, can be downloaded from the CBI website.

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