Employers will be forced to contribute to occupational pension schemes unless many more companies start making voluntary payments on employees' behalf, the government warned on Tuesday.
Alan Johnson, the work and pensions secretary, signalled the tough approach in the wake of the Pensions Commission's interim finding that employers' contributions of 5 per cent of salary increases pension scheme membership fivefold.
"If employers want to avoid being compelled to contribute a set amount to a pension, then we need to move towards a world where employer contribution is the norm," he told an insurance industry conference on pensions. Mr Johnson gave no details of how compulsion would work and the pensions department said no decisions would be made before the commission's final report.
However, Mr Johnson made clear that ministers have been impressed by the commission's suggestion that a widespread increase in company contributions could play a big part in easing the pensions crisis.
About 4.6m workers are not enrolled in their company pension schemes. In the £10,000-£20,000 earnings band the number who have declined to join schemes for which they are eligible is greater than the number who have no access.
Most large companies provide occupational pensions schemes, but about 80 per cent of employer-sponsored stakeholder schemes have no members. Of those, 87 per cent do not receive contributions from employers.
Compulsory contributions would be fiercely resisted by employers. The CBI employers' organisation said companies should contribute only if they could afford it. Mr Johnson also signalled growing interest in auto-enrolment for pension schemes, under which new employees would become members of their company's scheme unless they opted out. He said the government was "committed" to auto-enrolment as an alternative to the compulsory provision of "high-quality" information and advice on pensions.
However, officials said the pensions bill would probably only encourage auto-enrolment as an alternative to advice. Mr Johnson defended the pension credit, which has reduced poverty among the poorest pensioners but is criticised as a savings disincentive for middle-income earners. He said it would be foolish to deny that it might be a disincentive but insisted that any disincentive effect was outweighed by its impact on pensioner poverty. However, he appeared to confirm indications that the government is reconsidering the future of the credit. "We are saying that this is today's solution to today's problem," he said.
Research published by the Association of British Insurers suggested widespread public comprehension of the pensions crisis. The ABI said 37 per cent of people thought employees would have to work longer in future, while 29 per cent thought people would have to save more.
SCHEMES TO COME INTO LINE WITH OTHER SAVINGS PRODUCTS Charges for existing members of stakeholder pension schemes will continue to be capped at 1 per cent when the cap on charges for new stakeholder products rises to 1.5 per cent in April, the Department for Work and Pensions said yesterday, writes Kevin Brown. Malcolm Wicks, the pensions minister, also announced a consultation on other changes to bring stakeholder pensions into line with a range of simple savings products to be marketed under the stakeholder banner. The main change is that people who opt not to make investment choices will have their savings moved automatically from equities into fixed interest securities at least five years before retirement. The government had been expected to retain the 1 per cent cap for existing stakeholder pensions. However, Alan Johnson, the work and pensions secretary, revealed that ministers have been forced to legislate because some companies refused to comply on a voluntary agreement.
