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New Pensions Proposals from CBI

July 19 2004 - The CBI has produced new proposals to deal with the pensions crisis, including better employer schemes, higher state pension - and raising the state pension age to 70.

The CBI's report has been developed by its Pensions Strategy Group led by Unilever UK Chairman Richard Greenhalgh and is aimed at developing sustainable pensions provision. The report states that:

* Both employers and individuals should put more money into pensions. All employers who can afford to contribute to pensions should do so when their employees also contribute and employers should automatically opt new employees in to pension schemes after any waiting time has been completed. This is the most effective way of increasing take-up.

* To boost savings the government should increase incentives for firms and their employees, particularly small and medium-size enterprises (SMEs) and people on low earnings. The government should reduce regulatory and cost burdens on schemes rather than adding to them. It should commit to, at least maintaining, tax reliefs. For small and medium-size firms the government could consider an SME employer tax credit, access to free independent financial advice, a new Partnership Pension or seed corn funding for schemes in specific industry sectors.

* To help low paid workers the government should increase the basic state pension to the level of the Pensions Credit to reduce the need for means testing. A government-provided, earnings-related second state pension should also be retained.

* To help fund this the state pension age should gradually rise to 70 over the decade from 2020 to 2030. Together with a rise in the basic state pension this would mean the percentage of GDP being spent on state pensions would rise from 5 per cent in 2000/01 to 7.1 per cent by 2050/51 rather than to 6 per cent under the existing system. The report underlines the seriousness of the emerging pensions crisis. It highlights the damaging combination of circumstances that have forced employers to reassess their pensions provision and underlines the strain that state pensions are likely to face over coming years.

Richard Greenhalgh says : "Overwhelmingly employers remain committed to pensions and have responded as well as they are able to, given the difficult circumstances that have confronted them. Few people appreciate the extreme pressure companies have been under - businesses will have to make £6 billion worth of additional pension payments in each of the next three years.

"Employers are not the villains of the piece. Private provision has been tested to the limit by falling returns on investments, tax regime changes and longer life expectancy. This has been hugely damaging to companies' ability to invest and that's bad for shareholders, employees and the UK economy as a whole.

"There are no easy solutions but this report is a serious attempt to assess how we avoid widespread pensioner poverty in the decades ahead. The UK's voluntary approach must be reinvigorated and we are confident it can be. That means employers, government and individuals recommitting to pensions and each accepting their responsibilities."

The report rejects TUC calls for compulsion for employers and employees to contribute to pensions schemes. This would reduce total pensions saving by levelling down contributions to the legal minimum and could cost companies up to £22 billion. The report also stresses that current public sector pensions cannot be sustained. Unless public sector schemes are made more affordable it will lead to growing resentment among private sector workers and employers who are paying the taxes that finance them. The report also calls on employers to: Modernise pension schemes in ways which combine the best elements of defined benefit and defined contribution relevant to the particular needs of the business and its employees. Contribute to pensions schemes when their employees do, if that can be afforded. Increase pension take-up by automatically opting new employees into schemes after any waiting period has been completed.

Commenting on the proposals, TUC General Secretary Brendan Barber said:

"The CBI's recognition of the depth of the pensions crisis can only add to the pressure on the government and the Pensions Commission to adopt radical proposals to plug the savings gap. To that extent we welcome this report, but many of its policy prescriptions are wide of the mark.

"Employees in particular will be angry that their employers are suggesting they should work until they are 70 before they get a state pension, especially as the CBI are lobbying hard for 65 as the age at which employers can force people to retire.

"Their continued sniping at public sector pensions is also unattractive. Pensions are part of the whole remuneration package and should be judged as such.

"While we welcome the CBI's call for employers to act responsibly and to be generous, this call has come too late for the millions who have lost out as companies have cut pensions for their staff, while keeping bumper boardroom packages. Many CBI members do provide proper pensions, they should therefore accept that compulsion is only way to get the many employers who provide no pension at all to make a proper contribution to the pensions partnership between state, employer and employee. That is the only long term solution to the pensions crisis."


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