Christine Seib says the White Paper on pensions could hit UK business hard
The unbearable tedium of mortality tables, annuity rates, defined benefit versus defined contribution, contracting in or contracting out – who could blame general insurers and brokers for leaving the intricacies of occupational pensions to the life companies?
Meanwhile, their own company's final salary pension scheme chugged along nicely, thank you very much, sometimes even building up such a nice surplus that they had to take one of those now-mythical contribution holidays.
Not anymore. Falling stock markets, rocketing improvements in longevity and a disastrous combination of government inactivity and meddling mean that pensions are everyone's business.
They are on the agenda of board meetings, popping up M&A discussions, occupying the attentions of the unions. Hell, they even have their own regulator. Pensions, both final salary and money purchase, have an impact on the way all but the tiniest of companies
Which is why you should pay attention to the Department for Work and Pensions White Paper on pensions. Just in case you've slept through the last year or so's newspaper coverage of the issue, the White Paper is the government's response to a report released last November by the Pensions Commission.
Chaired by Adair Turner, the former CBI boss, now better known as Lord Turner of Ecchinswell, the Commission had been asked by Tony Blair to look for solutions to Britain's so-called pensions crisis.
One of Lord Turner's suggestions had potentially costly implications for every employer. Yes, the idea of a National Pensions Savings Scheme (NPSS) is a goer.
The NPSS, as designed by Lord Turner, will work broadly like this – all workers are opted in but can opt out if they have a good reason to do so, such as more pressing debts.
If any employee stays in the scheme, they must contribute 4% of their pay. This is topped up by a 1% contribution from the government and 3% from the employer. The employer has no choice but to contribute for as long as the employee is opted in.
The CBI has already given warning that a compulsory 3% contribution could cause the collapse of some of the 1.57 million British businesses with fewer than 250 workers.
The confederation's initial calculations indicated that in their first year, these
compulsory contributions will add £1.5bn to the £191bn annual labour bill paid by small businesses.
Last month, the figures escalated, with one newspaper claiming that a leaked report of the White Paper showed that companies could face a bill of as much as £2.6bn as a result of the pensions reforms.
The government will offer some small concessions. Companies with less than five employees will have the full cost of their 3% contribution covered and those with between five and 50 workers will receive some kind of subsidy.
Meanwhile, larger employers are expected to have their contributions phased in over three years.
All very considerate. But don't forget that this comes on top of a recent edict by the new, gun-slinging Pensions Regulator that all companies must have their final salary scheme deficit paid off within 10 years, or have a damn good excuse why not.
Actuaries at Aon Consulting reckon this will add £11bn to the £26bn annual pensions bill already covered by UK businesses. More than a third of companies already say that the cost of plugging the gap in their pension fund is hitting dividend payouts. Even more say that their pension fund is draining away money that would have been used to develop the business.
These figures are likely to rise if employers are hit for more cash in the shape of the NPSS. Falling dividends and an inability to fund development bodes well for no one – companies, pensioners or investors.
In a nutshell, that's why, no matter how much the thought of pensions makes you yawn, this is one White Paper you don't want to miss. IT