Business leaders have warned that one in five firms would have to axe staff to pay for compulsory pensions.
As the government awaits the report from Adair Turner's pensions commission later this year, which is expected to suggest mandatory schemes as one way of closing Britain's savings gap, the British Chambers of Commerce said the move would come at the cost of jobs.
A BCC survey released on Friday showed that on top of 20 per cent of companies saying staff would have to go, more than a third said salaries would have to be put on hold, while 31 per cent said the increased cost would be passed on to customers via price hikes.
Of the 800 firms polled by the lobby group more than half said they did not contribute to a pension scheme because they could not afford it, with the figure rising to three quarters among firms employing fewer than 50 people.
Compulsory savings are seen by many as the only way to tackle Britain's growing pensions crisis in the long term.
Ministers are set to give the idea serious consideration if recommended by Turner, with unions backing a model similar to that introduced in Australia.
Stakeholder Response: Which?
Mick McAteer, principal policy advisor at Which?, told ePolitix.com: “Opponents of compulsion fall into three camps - the economically illiterate, those who are opposed on ideological grounds, and vested interests who disingenuously raise problems with compulsion because they know it would force them to live up to their responsibilities to society or in the case of the insurance industry, would undermine their business models.
“To address the pensions crisis, we must objectively assess what is best for the national economic interest and importantly what is best for future generations of citizens who have no say in today's pensions policy and will pick up the bill for funding pensions in the future. Extending compulsion is simply the fairest, and most cost-effective of ensuring that enough money goes into the pension pot to provide a decent, sustainable pensions system for all.
“There are a number of myths put round by the opponents of compulsion which need to be dealt with - it is too costly, it leads to a fall in savings, it takes money out of the economy, it would deprive the government of tax revenue, it would be wrong to force people on lower incomes to save, consumers are against it.
“Every single problem raised applies more so to the voluntary system we have. One thing that these opponents conveniently forget is that it costs a given amount of money to provide a given amount of pension whether it is voluntary or compulsory. Indeed, compulsion is cheaper in that we don't need to use the billions of pounds in tax relief to encourage people and firms to contribute to pensions, nor do we need to spend huge amounts of tax relief which is wasted cross subsidising the marketing and distribution cots of the insurance industry. The only way that voluntarism can be cheaper than compulsion is if insufficient contributions are being made into pension schemes in a voluntary system which simply passes on the costs to future generations. Similarly, the only way that compulsion can take more money out of the economy that voluntarism is if voluntarism fails to deliver necessary level of contributions.
“The evidence from Australia which is closest to our system is that compulsion has had an overall positive effect on savings. The savings rate did indeed fall in Australia but that was in the context of falling global savings but in Australia the evidence suggests that it fell less than would be expected.
“Similarly, the idea that you can't have compulsion because it would hurt people on low incomes is disingenuous. The compulsion we have in mind would be shared between employers and individuals and could be set at a rate which would not impact on lower income groups. In fact, compulsion would allow the government to use the money saved in tax relief to pay contributions on behalf of the most disadvantaged.
“Evidence that we have gathered from the US suggests that voluntarism hits vulnerable groups hardest. Moreover, in the current voluntary system we have in the UK consumers on lower incomes are being denied access to the benefits the stock market can bring because the insurance industry is too inefficient to sell pensions to these groups.
“The government could also allow firms to offset the costs of compulsion against corporation tax if it believed the industry concerns about the costs of compulsion. Whatever the challenges compulsion works out cheaper than voluntarism.
“Compulsion allows for huge efficiency gains and opponents of compulsion in the insurance industry know for sure that if we did have a compulsory pension system they would be bypassed and the money would go straight to the big institutional pension fund managers who already run employers schemes at a fraction of the cost of insurance based personal pensions.
“So compulsion makes sense and pound for pound provides better pensions than voluntarism ever can. What we need are politicians who are not afraid to stand up and be counted and who recognise what the future holds if action isn't taken now. Our quantitative and qualitative research shows that consumers have a mature attitude about the need for compulsion with most supporting it. We think that now politicians need to grasp the nettle of compulsion.”
Stakeholder Response: Help the Aged
Mervyn Kohler, head of public affairs at Help the Aged, said: "The current system of pensions arrangements is overly confusing and difficult to navigate for many workers - the low take-up rate of pensions provision is a key symptom of this. The fact that many employers are eroding or even closing their own schemes means that many workers in Britain today face an uncertain future in retirement.
"The only way to address this crisis is for employers to accept greater responsibility for their workforce. Simpler and more secure savings schemes must be made compulsory to bridge the savings gap. The voluntary principle in private pension policy has been a failure - this is a harsh fact which government and employers must accept.
"Where Help the Aged does not currently support compulsion is at the employee level. What we would rather see is a policy change by government to scrap mandatory retirement ages altogether. It cannot be right that when workers reach a certain birthday they are designated as no longer economically productive. This is nothing short of age discrimination. Employees should have the right themselves to choose with their employer when they retire, not be forced to do so by government at 60 or 65.
"All in all, an element of compulsion in saving for retirement at employer level, coupled with flexible retirement ages for employees provide the most equitable and sustainable means of addressing the pensions crisis."
