Survey explodes pension myth

A new survey explodes the myth that UK businesses would cut their pension contributions after the introduction of a National Pensions Savings Scheme (NPSS). The survey of almost 1,000 UK employers, by the Chartered Institute of Personnel and Development (CIPD), shows that the vast majority of companies (81%) have no intention of changing their existing pension arrangements in the light of Lord Turner’s Pensions Commission proposals for a compulsory national scheme. Under those proposals, employers would be forced to contribute 3% of salaries to the NPSS for staff who chose to join the scheme. Employees would contribute 5%.

The survey found that not only will most employers keep up their current contributions, but only 1% will opt for the NPSS to cut costs.

These findings contradict the assertion made recently by the CBI, in its published response to Lord Turner’s proposals that the compulsory scheme would lead to companies levelling down their contributions. "There is a real risk [3%] could become the norm, not the floor, for contributions - and compulsion could provoke a longer term shift away from tailored occupational provision," the CBI said.

The CIPD research also found that most small businesses with between 25 and 99 staff already contribute to a pension fund, and that pension provision for organisations with between 25-249 employees compares with the largest organisations. This debunks the myth that small companies don’t contribute to pension schemes, says the CIPD.

However, there is some grist to the CBI’s mill. The CIPD survey found that very small firms employing fewer than 25 staff are concerned about the impact that the 3% employer contribution will have on employment costs. This suggests the CBI may be justified in its view that the national pension scheme could be unaffordable for smaller firms who do not have a pension scheme, and that it may force some to fold.