Firms warned over pension reforms
Updated on 14 November 2007
Government pension reforms will cost companies an extra £4 billion a year, a consultancy firm warned.
Aon Consulting said the changes set out in the Pensions Bill amounted to an extra tax on companies and it warned firms to brace themselves for the financial implications of the move.
The reforms, which are being debated in Parliament today, will see a new system of Personal Accounts set up in 2012 to encourage people on low and medium incomes to save towards their retirement.
It will also become compulsory for companies to contribute to workers' pensions.
People who are not already a member of an occupational pension will be automatically enrolled into Personal Accounts, although they will retain the right to opt out.
They will contribute 4% of their earnings, while their company will have to pay in 3% and the Government will contribute 1%.
But Aon said today that while Personal Accounts appeared to encourage people to save into a pension, the real winner from the scheme would be the Government as it was likely to lead to a reduction in the level of means-tested benefits paid out.
Donald Duval, head of actuarial and benefits consulting at Aon, said: "Although on the face of it Personal Accounts appears to be a system that could ensure workers save for retirement, in reality, the real winner is not those it is supposedly aimed at, the UK workforce, but in fact the Government itself.
"For those caught by the means test, which is a large part of the target group for Personal Accounts, much of the employer contribution on their behalf will actually go to reducing the means-tested benefits themselves. In other words, it is a measure that is ultimately designed to save Government money.
"Economically, in respect to those who are at the lower end of the pay scale, the effect would be similar to an increase in employer National Insurance contributions."
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