Business concern over cost of Turner review
Experts warn that pension reforms in Turner review may be too costly for UK business
Experts warn that pension reforms in Turner review may be too costly for UK business
The pension reforms announced by Lord Adair Turner this morning have raised
concerns among business representatives that funding pensions may be too
expensive.
According to Big Four firm Deloitte the proposals, which call for individuals
to contribute 4% of their post-tax earnings to the state saving scheme and for
their employers to pay an additional 3% with government contributing 1% through
tax cuts, could cost UK plc as much a £4bn a year.
Lord Turner said this would add only 0.6% to the labour costs of the private
sector, but experts and business groups questioned the affordability of the new
reforms.
Deloitte argued that the cost of Lord Turner’s National Pension Saving Scheme
for the FTSE100 alone would be an average of £10m per company per annum.
The firm said only 60% of the 2.5 million UK employees in FTSE100 companies
participated in pension arrangements, adding that for the very largest
companies, extra contributions could amount to as much as £50m per company per
annum.
Consulting partner at Deloitte, David Robbins, said the additional cost
burden would have ‘a profound effect on the way in which UK plc remunerates its
employees’ and warned that future salary increases could be ‘restrained’ as a
result.
‘These additional costs come at a bad time for employers who are facing two
pensions crises, not one,’ said Robbins. ‘They are already meeting the cost of
plugging the holes in their own pension schemes, and now face the additional
cost of compulsory contributions to all employees’ personal accounts.’
David Frost, director general of the British Chambers of Commerce, meanwhile,
told the BBC that it would ‘harmful’ to burden business with an extra
3% levy and warned that jobs could be at stake as a result.
‘Simply to levy an extra 3% as a compulsory pension contribution at this time
would be very harmful,’ said Frost. ‘Something would have to give and
significantly – it could be jobs.’
Since the introduction of FRS17, an accounting standard requiring pension
deficits to appear on company balance sheets, concern has grown among businesses
about the burdens of funding pensions.
The Institute of Directors echoed these sentiments, saying that compulsory
employer pension contributions would not solve the UK’s pension problems, and
would act as a tax on employment.
‘The second (Turner) report is the most comprehensive analysis of the UK
pension system ever undertaken, but we do not want the government to accept its
recommendations on employer compulsion. The burden of pensions on employers is
already high enough,’ said IoD director general Miles Templeman.