CBI raises spectre of £70bn bill as it tears into Turner report

Bosses' organisation says proposed reforms will force up labour costs for companies and damage UK economy

The cost to business of providing pensions could double to more than £70bn a year under Lord Turner's "perverse" proposal for a national pension savings scheme (NPSS), the CBI will warn this week.

The bosses' organisation will give its response to the Turner recommendations to the pensions reform minister, Stephen Timms, on Friday. It will say that if automatic pension scheme enrolment is imposed, this is likely to double the number of employees who join company plans.

Automatic enrolment is a key element of the Turner report.

The CBI will say that this would force up the total amount employers contribute to their schemes, not taking into account special contributions, from around £36bn to more than £70bn a year.

The CBI's head of pensions, Anthony Thompson, said: "There is a very clear concern over the impact these proposals will have on labour costs, growth and employment. We are concerned about the total cost to the economy, as well as to those providing schemes."

Under the proposals from Lord Turner, a former director-general of the CBI, workers would be automatically enrolled into the universal NPSS, with the opportunity to opt out. It would require 5 per cent contributions from employees and a minimum of 3 per cent from employers.

The Turner report claimed the plan would increase labour costs for companies with between five and 50 employees by between 0.83 and 1.06 per cent and by 0.5 to 0.7 per cent for the whole economy.

The CBI will argue that, as a result of this extra cost, there will be a "levelling down" of UK workplace pension provision. And it will claim that setting a minimum employer contribution rate of 3 per cent will create "perverse incentives" that could more than halve the amount companies pay into schemes.

"The Government would be out there saying a 3 per cent contribution rate is the standard, so anybody contributing within the current average range of 7-8 per cent will have little incentive to keep contributing at a higher level," Mr Thompson said.

He added that employers should not be forced to contribute to the NPSS when workers have the option whether to take part. "If employees choose to opt out, they are allowed to. There should be the same ability for employers."

Another employers' organisation, the EEF, will claim that Lord Turner's plans could force small firms into insolvency. It is calling for small employers to be paid a cash lump sum if the NPSS is introduced. It has suggested a £250 payment to companies with less than 100 employees for at least the first three to five years.

In its response to Mr Timms' request for feedback on Lord Turner's proposals, the Investment Management Association claimed the NPSS was "workable" provided it was managed by the private sector and governed by an independent board. Its chief executive, Richard Saunders, said: "If the Government is going to go for this, it is clear that the right way is to build on well-established structures in the institutional pensions market."

The National Association of Pension Funds - which has called the NPSS "Stalinist" - has advocated the establishment of up to 20 not-for-profit "super-trust" investment vehicles to run the scheme.

Lord Turner lambasted his critics at a conference in Edinburgh on Wednesday. He said organisations had put forward "bad arguments" and "red herrings which confuse the debate".