Government urged to step in on pensions

Published on Friday 27 January 2006 11:47

BRITAIN'S small companies could get government assistance to help deal with a proposed three per cent employer pension contribution for their workers.

The contribution was one of the ideas floated under the Pension Commission's recent proposals on pension reform.

Lord Adair Turner, the commission's chairman, said his proposals were not "a bible" and he was willing to try and reach agreement with Chancellor Gordon Brown that would help minimise the cost of the reform proposals.

But he said he believed the Government would support his main ideas for a higher basic state pension, a later state pension age, less means-testing and a national savings scheme with automatic enrolment.

"The debate has moved on and I feel strongly that whatever happens, something will come out of it," he said.

There were, however, two remaining "big issues", Lord Turner said. Firstly, the burden of the three per cent contribution from employers where staff choose to remain in the national savings scheme, And, second, the cost involved in raising the basic state pension in line with earnings rather than prices.

Compulsory employer contributions could raise overall labour costs for small businesses by one per cent, while large companies, many of whom already contribute, would face an additional burden of only 0.4 per cent.

"The thing I have been urging business groups to do is suggest ways of mitigating that impact," Lord Turner said.

He believes the Government could pay a subsidy for the contribution because that would help small firms at little cost to the Exchequer as there are cash flow savings to the Government from the commission's proposed reform of the state second pension.