Press ahead with pension reforms but simplify them, says CBI

The CBI has urged the government to continue with the planned schedule for introducing workplace pension reforms that will see all employees automatically enrolled in a retirement scheme.

But the employers' group has also said that the scheme must be made simpler and more flexible if it is to succeed.

As from 2012, employees, who are not already members of a qualifying pension scheme, will be automatically enrolled on a phased schedule into a work-based fund, with their employers contributing a minimum of 3 per cent.

The government will be introducing the National Employment Savings Trust (NEST) as an alternative for employers that do not set up their own pension scheme.

The CBI argued that the changes must be simplified if the smallest firms and those larger businesses bringing significant numbers of people into pension saving for the first time are to find the rules easy to comply with.

Calls have been made to exempt very small employers - those with five or fewer workers - from the scheme.

But the CBI said that simplification is a better policy than exemption.

Given that 95 per cent of all firms have workforces of fewer than five employees, excluding them from the scheme would mean that the changes would fail to address the problem that not enough people are saving for their retirements.

Specifically, the CBI would like to see auto-enrolment kick-in only three months after someone has started a job. This would avoid auto-enrolling people on short-term assignments and cut down the cost to employers of auto-enrolling staff only for them to opt-out after a short period.

Other improvements the CBI called for include simplifying NEST's complex charging structure so it doesn't hinder a wide take-up of pensions.

There should be incentives for companies to operate better schemes. A simple self-certification approach for good defined contribution schemes would side-step the cost of individualised testing which could lead firms to level down pension contributions to the minimum.

The CBI added that the current staging timetables for the introduction of the scheme by firms of varying size should be stuck to, but that employment agencies should be moved to a common commencement date to avoid destabilising the agency work market.

Katja Hall, the CBI's director of employment policy, commented: "With an ageing population, more people need to save for their old age or the taxpayer will end up footing the bill. Automatically enrolling people into pension schemes is the right thing to do, but the reforms must cover all employers and be easy to implement.

"We must avoid creating a two-tier pensions system, where a huge number of employees are still left uncovered. Everyone needs to save for their retirement. These reforms should be treated in the same way as other new employment rights, like the minimum wage, where the same rules apply to all.

"Although some improvements have been made to the government's plans, they are still too rigid and inflexible, and include unnecessary red tape. Firms need 18-24 months to comply with the new regulations so will have to start preparing from October this year. We need clarity on this critical issue, and soon."