Institutions urge £900m tax break to close employers' pensions gap

The Association of British Insurers (ABI) called on the Government yesterday to spend up to £900m a year to give employers an extra incentive to contribute to employee pension schemes, arguing that this would close the savings gap by nearly £3bn.

This was part of a five-point plan set out by Mary Francis, the director-general of the ABI, in a speech to the All-Party Parliamentary Group on Insurance and Financial Services, aimed at reducing the savings gap by £10bn from its present £27bn.

The new Pensions Contribution Tax Credit could mean that a £100 contribution from an employer would actually cost only £60, compared with £80 now.

The ABI's other proposals include streamlining the current pensions framework with simpler rules, especially on tax, as well as cutting the cost of regulating the sales process and allowing simpler savings products. It also calls for extending the advice and information available to people at work, especially about company pension schemes, and suggests getting the Government, the financial services industry and the Financial Services Authority to work together to find sensible and cost-effective ways to spread financial education, information and encouragement. Research by the ABI suggests that regulatory reform of the sale of savings products could reduce the savings gap by £4-5bn, as more people gain access to appropriate financial advice and simpler products, with no loss of consumer protection.

In addition to the tax credit, Ms Francis wants the Government to give employers a £500m incentive to stimulate greater availability of financial advice in the workplace, to close the savings gap by £3bn. With the £3bn from the tax credit, that would close the gap by £10bn, says the ABI.