EEF moots contributory pension scheme |
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Thu, 01 Sep 2005 16:05
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LONDON: In a major policy shift, the Engineering Employers Federation, an apex organisation of employers in Britain, has suggested a mandatory contribution pension scheme for employees. It said the country should have an enhanced basic state pension and employers should be forced to make minimum contributions as should employees.
The suggestion has been welcomed by employees' unions.
The EEF, representing some 6,000 manufacturing, engineering and technology firms employing almost one million people, said in a submission before Britain's Pension Commission that it cannot be expected to walk away from pensions issues and "it is unrealistic to expect that it would be allowed to do so". The commission, chaired by Adair Turner, is expected to submit a report on pension reforms in late autumn.
Pension has become a controversial issue in Britain in view of an ageing population, increased life expectancy, vagaries of the stock market and low yields on investments. This has compelled the government to think in terms of reforms.
The Confederation of British Industry, the largest employers group in Britain, however hold the view that there should be no further pressure for mandatory contributions. It favours introduction of incentives to save and any compulsion would be "yet another stealth tax".
A recent survey by the British Chambers of Commerce has revealed that one in five companies had said they would have to cut jobs if compelled to pay into pensions.
Immediately welcoming the suggestion by EEF, the Trades Union Congress, an umbrella organisation of workers unions having some 6.5 million workers under their fold, described it as a "hugely significant report". Its Secretary General Brendan Barber said for the first time an important employer organisation has broken ranks and come out as a supporter of pensions compulsion. "No longer can other employer organisations pretend that business is united."
EEF suggests that workers retiring at 65 would get 21 per cent of average earnings. That would rise to 25 percent at age 75. Compulsory contributions by employers and employees would start at 2 per cent of earnings in 2015, rising to 4 per cent by 2025.
EEF argues that as soon as contributions are made mandatory, there will be no need for incentives. The scheme would be administered by the government and the contributions collected through the national insurance scheme, but the funds remaining ring-fenced. The funds will be managed by five private fund managers, who would be selected after proper tendering process. There will be tendering every five years.
The department of work and pensions of the government reveals that as many as 10 million people of working age in the country are not saving enough for their retirement. This is mainly because they are not aware of various available schemes.
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