Employers hit out at new Pensions Bill

Government plans to tackle the crisis of confidence in Britain's pension savings met a poor response from employers, who fear they will be too costly and will accelerate the decline of final-salary schemes.

Government plans to tackle the crisis of confidence in Britain's pension savings met a poor response from employers, who fear they will be too costly and will accelerate the decline of final-salary schemes.

The Pensions Bill, published yesterday, sets out the rules for a pension protection fund into which all pension schemes will pay a levy to bail out companies that go bust. Workers, as well as those already retired and receiving pensions from the scheme, would have their benefits secured.

Employers, though, will have to pay a flat fee for up to two years, meaning well-funded schemes will be charged the same as those in difficulty when the fund starts operating in April 2005.

David Frost, the director general of the British Chambers of Commerce, said: "This Bill will not encourage employers to provide pensions. The Pension Protection Fund is a knee-jerk reaction that will accelerate the demise of final-salary schemes. Employers, burdened by ever-increasing costs, will choose either to close their schemes or reduce the size of their contributions. This will mean that many employees will lose out in the long term."

The Government plans to introduce a risk-based premium that will take account of the likelihood of the company drawing on the fund. At least half the levy would be set according to the risk posed by a scheme, with the rest assessed according to how many members it had and how many of these were retired. It says its attempts to cut red tape on pension schemes will offset much of the cost of the levy.

Many employer groups, including the CBI and the Engineering Employers' Federation, welcome the protection fund, but say the risk-based premium must be introduced as soon as possible. The EEF said employers would have to recover part of the levy from their staff.

Jeremy Willmont, a partner at Moore Stephens, said he feared more companies would abandon their schemes because of the added costs. "Employees' pension benefits that have been accrued to date will be protected by the fund, but this will be scant consolation if they lose a job which provided a salary and much greater pension benefits if they had been allowed to work until retirement," Mr Willmont said.

Pressure was also mounting on the Government to help the recent victims of lost pension promises, such as steelworkers at the defunct engineering companies ASW and UEF.

The Government was also criticised for failing to take a radical long-term view on its pension policy. Some called for more tax incentives to boost levels of pension savings. Terry Faulkner, the chairman of the National Association of Pension Funds, said: "Is there anything in the Bill to simplify our archaic state pension system? Is there anything to encourage firms to offer decent pensions to their employees, or keep existing schemes open? Are there new incentives to encourage people to save? The answer is 'No'."

The Consumers' Association called the strategy in the Bill "complex, risky and devoid of real consumer choice".

The Bill also set out plans to entice people to defer drawing their state pension. The Government will reward those who wait another five years with a lump sum of up to £30,000 or a £52 a week rise in their pension.

As well as the pension protection fund, a new pension regulator will be set up to replace the Occupational Pensions Regulatory Authority. The new regulator will focus on under-funding, fraud and mal-administration.

THE MAIN PROPOSALS

A pension protection fund to bail out schemes of insolvent companies

A new pensions regulator to monitor schemes more effectively

Improved standardsfor scheme trustees

Forecasts of pension benefits to be provided as part of an annual "pension check-up"

A new funding measure based on a pension scheme's individual assets and liabilities

Protectionfor pension benefits when switching employer

Annual benefit increases to be capped at 2.5 per cent instead of 5 per cent to protect employers

Improving terms for deferring state pension, to encourage people to carry on working