Pensions White Paper sets out its stall

A small business pressure group claims that the Government is trying to sneak in another stealth tax on employment, under the noses of smaller businesses.

The Forum of Private Business (FPB) reacted with alarm to the publication of a Government pensions' White Paper that, it claimed, 'only succeeded in setting out a confused agenda to introduce compulsory contributions from employers to a National Pension Savings Scheme'.

The FPB's Chief Executive, Nick Goulding, said: "The White Paper shows that the Government has not got the courage of its convictions. They are intent to let employers foot the bill for the pensions black hole, but are hoping that small businesses won't notice the impact if they drag their heals introducing it."

The group was referring to the introduction of the scheme to force firms to contribute three per cent of their employees' wages to the National Pensions Saving Scheme. This process, according to the White Paper, will be implemented over three years with the consideration of a "longer phasing-in period for smaller businesses".

Mr Goulding said: "This is a half-hearted attempt to appease those companies that will be hardest hit. Small firms are left with the knowledge they will be hit by an employment tax, but with the uncertainty of not knowing when it will come into force."

The White Paper will also give employees the opportunity to opt out of the scheme. That is something which will infuriate employers, said Mr Goulding. "When the Government should be doing all it can to encourage individuals to save for the future, it has given them an option to sit back and let their bosses save for them."

Mr Goulding insists the impact of the compulsory contributions will inevitably hit employees too. "Business owners and their staff have been left high and dry again. The cost of this scheme will be passed onto the consumer, or even result in job losses. The Government have given no thought to the cost for employers and the average earner will be left under whelmed by the value that this scheme brings them."

Federation of Small Businesses

However, another small business group, the Federation of Small Businesses (FSB) welcomed the Government's approach to tackling the future of UK pensions.

The FSB noted the Government's assurance that small businesses would get help to cope with possible compulsory contributions to a national pensions saving scheme.

However, the FSB urged legislators to put measures in place to encourage individuals to take responsibility for their own retirement.

Mike Cherry, FSB National Pensions Spokesman, said: "Everybody recognises the need to tackle the future of pensions and the Government has done well to grasp the nettle on this issue. The Government's stated aim has been for individuals to take responsibility for their own futures and we hope this is reflected in the final settlement.

"Our discussions at number 10 Downing Street saw all the business organisations united in their concern about the impact the proposals would have on small businesses and their employees.

"Good communication and simplicity is the key to making this work. We welcome the time the Government is giving to this debate and look forward to being fully involved in representing the views of small businesses."

White Paper

The White Paper sets out the Government's proposals for reform on the pensions system with the aim of enabling people to plan ahead and save more for their retirement.

The Government claims the proposals are for the future and will provide the infrastructure for the system for the next forty years.

The Government says the key elements of the White Paper include:

• New low cost savings scheme in which employees will be automatically enrolled. Employers will make matching contributions while the employee chooses to remain in the scheme. This will create a new savings culture in Britain; up to 10 million people will be saving in these personal accounts and most of the money paid in will be new pension saving. By retirement, their pension funds could be worth up to around 25 per cent more because of lower charges;
  
• These measures to make it easier to save will be supported by a higher fairer state pension re-linked to earnings. This will mean that by around 2050 anyone who has been in employment or caring throughout their working life will get around £135 a week or more in retirement in state pension. This is over £20 a week above the guaranteed income level.
  
• Measures to help smooth the introduction of this reform for business. Employer contributions will be phased in over at least three years and the contribution rate will be fixed in primary legislation. In order to minimise the burden on the smallest businesses, we will consult on additional transitional support.
  
• We will ensure the new settlement is sustainable over coming decades by gradually raising the state pension age in line with life expectancy. The state pension age will rise to 66 over two years between 2024 and 2026 and then from 66 to 67 between 2034 and 2036 and then to 68 in 2044 to 2046.
  
• The package of reforms continues to protect the poorest pensioners from poverty. It will ensure that the least well off continue to share in the growing wealth of society by increasing the guarantee credit in line with earnings in the years ahead.
  
• Unfairness in the system - which affects women in particular will be addressed by modernising the contributory principle for the basic state pension and the state second pension so it rewards social contributions equally with paid contributions. This will be done by: cutting to 30 the number of qualifying years needed to receive a full basic state pension and improving the system of credits. This will improve the pension provision for those who care for children as well as severely disabled people. In 2010, 70 per cent of women reaching State Pension age will be entitled to a full basic State Pension, compared to 30 per cent now.
  
• Abolishing the contracting out for defined contribution schemes will reduce administrative complexity and remove a key source of confusion for individuals.

The Government will now begin the formal consultation process, engaging with stakeholders and members of the public.