CBI says Turner pension plan will hit small firms

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The CBI will hit out at Lord Turner's proposals on pension reform today, rubbishing his plans to compel employers to pay into their staff pensions as both unfair and ineffective.

Unveiling its submission to the Government - before the proposed pensions reform White Paper due in the spring - the business group will say that compelling businesses to pay 3 per cent into employee pensions will place an unfair strain on smaller businesses, while failing to increase savings rates.

John Cridland, the CBI's deputy director general, said: "Forcing employers to contribute is neither fair, nor equitable or sensible. As the Pensions Commission says, it is not right to tell a 21 year old striving to pay off his student debts, or saving for a deposit for a flat, that he must first save for a pension. So why should a small company be forced to pay into a pension scheme if doing so could put it out of business or prevent the creation of new jobs?"

Mr Cridland added that he believed a compulsory employer contribution of 3 per cent would also encourage employers currently paying more to reduce their contributions to the statutory minimum. Furthermore, he said that experience in Australia has shown that once a compulsory 3 per cent contribution had been imposed on employers, there was a serious risk that future governments would try to push this up.

Australian companies are currently compelled to contribute 9 per cent towards their employee pensions, compared with just 2 per cent when the scheme was created in the 1990s.

The CBI says it supports much of the Turner Report, including plans to auto-enrol employees into their staff pension scheme.

However, it's submission suggests that instead of compelling employers to contribute to their staff pension schemes, the Government should implement a "Pension Builder" scheme, whereby employees would be encouraged to sacrifice part of their annual pay rise for a rise in pension contributions.

The submission also proposes that smaller companies be given state-backed incentives to provide pensions for their staff, suggesting two alternatives schemes.

Under its "Partnership Pensions" plan, small companies that agreed to contribute 2 per cent to their employees' pensions would have a further 1 per cent added by the Government.

Alternatively, the CBI suggests creating a pension tax credit, which would reduce pension contributions for smaller firms. The cost of these two schemes would be £555m or £475m a year respectively.