What is the case for employer compulsion
by Dr. Ros Altmann
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Compulsion on employers is unfair
Why should employers be forced to contribute to workers’ pensions? What is the rationale? Should they also have to contribute money to workers’ mortgages, or permanent health insurance? Surely this should be voluntary, not compulsory. Ultimately, the cost of income support in old age should come from society at a basic minimum and then the individual should be responsible for anything more. The employer has no obvious role, especially in an era where average job tenure is 5 years. Whether and how much to save should be a personal decision and I do not see why an employer should be compelled to pay for this.
We do, indeed, need more powerful incentives for individuals to save and the Pensions Commission is proposing ‘buy one, get one free’ pound for pound matching, which is a really strong incentive, however the cost of this incentive is coming from employers, rather than the taxpayer. Effectively, this is imposing a 3% tax rise on employers. If the Government were to say that all employers should face a 3% hike in National Insurance contributions, there would be an outrage, but this is effectively the same thing.
Means testing remains a barrier and pensions will still be ‘unsuitable’ for many
By not getting rid of means testing, and leaving 30% of pensioners eligible for pension credit, the suitability of pension saving remains unclear. People will be encouraged to join the Brit-Saver scheme, but there will be many who need advice about paying back their debts first. This advice would drive up the costs of the scheme, but is surely essential. The Brit-Saver will still be an investment product in which people can lose substantial amounts of their money. If means-testing is abolished altogether, at least people will not also run the risk of losing at least 40% of their eventual pensions too. There will be many people who may be better off saving in an ISA, or paying back their debts and not starting pensions until in their 40’s. This issue needs to be addressed.
Safety for savers in Brit-Saver – how can we trust a Government savings scheme?
If Government is designing and running a pension saving scheme, what safeguards will there be against losses? Who can trust that the money put into this scheme is safe? Long-term savings plans can always be made to sound great, but what happens when things go wrong? To have confidence in this scheme, it is essential that the Government must first set fully compensate the 85,000 people who saved all their lives in company schemes which Government told them were safe, protected by law and even ‘guaranteed’, yet who have lost most, or even all their pensions. If these people are left without their pensions, how can anyone envisage that any new Government scheme will be safe in 20, 30 or 40 years’ time?