By Richard Johnstone |12 December 2011
Business leaders have given their backing to proposed government reforms of the state pension but want their concerns about the knock-on effects on existing private schemes to be addressed.
A survey of 160 employers by the CBI and consultants Towers Watson found 73% back the government’s idea to merge the basic State Pension and State Second Pension into one.This was one of the options outlined by the Department of Work and Pension’s consultation on how to simplify the state pension system.
Currently, there is a flat rate state pension and a top-up state second pension, which is partly related to earnings and can provide extra money if an individual qualifies by building up contributions.
The DWP argue that merging the two could make the pensions system more transparent, and make it easier for people to work out what they will get from the state when they retire.
The companies surveyed, which employ 1.3 million people between them, agree that the move would persuade more staff to contribute towards a private pension by providing clarity over how much they will receive in retirement.
However, business leaders have also called for private sector schemes to be allowed to reform ahead of any new regime.
Currently, employees have the option to opt-out of accruing the second state pension and have their National Insurance contributions redirected towards a company scheme or personal pension.
This opt-out, which includes a National Insurance rebate for employers, would be abolished under a single state pension, and could therefore increase private scheme costs. Private pensions should therefore be allowed by the Pensions Regulator to be redesigned to avoid the higher contributions that could result, the majority of the survey respondents said.
The CBI’s chief policy director Katja Hall added: ‘Simplifying the state pension means people will get their pension without the bureaucracy of a two-tier system or means testing, which is good news.
‘But abolishing the contracted-out rebate in defined benefit schemes will significantly raise National Insurance contributions, so the CBI is calling on the government to offset these costs for employers and employees, otherwise more defined benefit schemes could be forced to close.’
