6 days ago
Labour's pensions overhaul ‘risks fresh wave of unemployment'
Liz Kendall's plans to force employers to pay more into retirement pots risk sparking a 'counterproductive' wave of unemployment, a leading pension consultant has warned.
Paul Cuff, co-head of Britain's biggest independent pension consultant XPS Pensions, cautioned the Work and Pensions Minister that rushing an increase in the level of employer pension contributions could fuel further job losses in the fragile labour market.
'Raising minimum levels of required contributions is another cost burden for employers that are under a lot of pressure. We all know that, especially following something like the National Insurance increase,' he said.
'It could have actually quite negative effects on the economy if it puts more financial pressure on companies and reduces their ability to invest or hire. It could be counterproductive.'
Mr Cuff added said it was 'quite possible' the move would trigger a surge in unemployment and that the Government and employers are in 'quite a difficult place' on the issue.
The warning comes after Ms Kendall launched a new pensions commission last month to tackle the fact that 'tomorrow's retirees are on track to be poorer than today's'.
Employers must typically contribute a minimum 3pc to their automatically enrolled workers' pensions, while employees put in a minimum of 5pc of their pre-tax salary – 8pc in total.
But auto-enrolment savings rate needs to be around twice as high – somewhere in the mid-teens – to offer adequate savings in addition to the state pension, Mr Cuff said. This means employers would face a significantly higher burden.
'We have to find a way of getting there somehow, otherwise we're kicking it down the road for another 20 years, but it will come back to haunt us one day. It's a very difficult problem,' he said.
Job market under strain
The Government has warned that almost half of working age adults are still not saving at all for their pension. This is despite the auto-enrolment policy boosting savings rates for eligible employees to 88pc, from 55pc in 2012.
Britain's job market is already under strain, with Ms Reeves' £25bn tax raid on employers and another inflation-busting minimum wage rise blamed for slowing hiring.
Unemployment is at a four-year high of 4.7pc, while hiring has been in decline for three year – the longest period on record in the last two decades.
Mr Cuff urged the Government to set out a plan and very gradually increase mandatory saving rates over several years.
It comes amid growing speculation that Ms Reeves will hit pensioners with National Insurance contributions for the first time as she seeks to plug a gap of as much as £50bn ahead of the autumn Budget. Currently, anyone working past the state pension age of 66 is exempt from the levy.
Ending this tax break for pensioners would raise £1.1bn a year by the end of the decade, according to the Institute for Fiscal Studies.
Steve Webb, the former pensions minister, said: 'Because it affects people over pension age, you could just about say 'well, it's not working families, it's not the manifesto pledge, it's pensioners who just happen to be working'. You could imagine that happening.'
Gordon Brown, the former prime minister, also suggested this week that it was a potential revenue raiser the Chancellor could explore.
However, Baroness Ros Altmann warned the Chancellor would likely pay the price through lower employment rates for pensioners. 'What we need and want is to encourage more older people to keep working,' she said.
