White Paper is mixture of good and bad news for Business, says IoD

25 May 2006

Director General of the Institute of Directors (IoD) Miles Templeman today welcomed the news that pension reform is being given the attention it deserves.

He said: “The IoD welcomes parts of the White Paper including the increase in the state pension age and re-establishing the earnings link.” However, he also expressed caution, highlighting the fact that there are still areas of concern in the pensions’ debate which are still to be addressed.

He added:

”Worryingly, the pensions system looks as though it may be as complicated after the White Paper as it was before. The Government may have lost a real opportunity to simplify the system for the 21st century. We need to sweep away the complexity of the current system.”

Specifically, Miles Templeman said:

“We strongly oppose compulsion on employers. It will act as a tax on employment increasing the price of labour and reducing demand. There is simply no economic case for compulsory employer contributions. The Government cannot continually offload social problems onto businesses and expect them to pay.”

The IoD pointed out that the level of compulsion on employers will prove to be a new benchmark which could result in pension saving actually falling instead of rising. The very fact that there is a 10 year phase-in period recognises that this is a significant extra cost for employers.

Secondly, the increase in the State Pension Age (SPA) to 68 is in line with what the IoD has called for - the difference being that we called for an increase to 70 by 2035. The overall magnitude of change is acceptable but the crucial issue is what will happen to the funds released by increasing the SPA?

Thirdly, re-establishing the earnings link is the right policy if the basic state pension is not to fall further and further behind average earnings. Our model works on the principle that the basic state pension will be increased to around £110 per week. However, this will not remove the need for means
testing and the Pension Credit since the basic state pension is well short of the level of Pension Credit.

Finally with regard to the State Second Pension, the IoD is pleased to see that there has been some movement to reduce the scale of means testing but it still leaves over one third of pensioners facing some form of means testing.  This is a step in the right direction but there is still some way to go.”