Should firms have to pay into your pension, even if you don’t?

A quarter of employees, many of whom are on the lowest incomes, choose not to contribute to their workplace pension or earn too little to qualify, according to the Institute for Fiscal Studies, a think tank. It thinks that businesses should still make contributions for them, to avoid millions living in poverty in old age. We seek opposing views
Steven Cameron, the director of pensions at the financial services firm Aegon
Employers should be required to pay at least 3 per cent into a pension scheme for all staff, regardless of whether the employee is also paying into the pot.
Employees aged between 22 and state pension age who earn more than £10,000 a year are automatically enrolled into a workplace pension, paying in 5 per cent of their qualifying earnings while the employer pays in 3 per cent. This has made a huge difference to the number who are building up private pensions.
However some employees opt out of auto-enrolment because they can’t afford the cut in take-home pay. This means they often lose their employer contribution too — employers are required to pay only if the employee does. This is not fair: employers would effectively benefit while employees work to keep the company profitable, but face financial hardship later in life.
Requiring employer contributions for this small number of workers won’t add much to the payroll. But the boost for workers would be significant — it could be the difference between no private pension and a valuable top-up to a modest state pension. This would offer protection to those most in need: lower earners, and often women who are more likely to work part-time because they are caring for family members.
Employers must comply with minimum-wage legislation and it’s not a big stretch to include employer pension contributions within that. But for the majority of workers, even a combined 8 per cent contribution won’t provide a comfortable retirement. So it’s vital that the benefits of paying personal contributions are fully understood by employees, including the valuable tax incentives such as tax-relief top-ups. Any chancellor tempted to downgrade these incentives should think carefully about the negative message this would send.
• My £435,000 pension is frozen — now I can’t retire
Many employers go beyond the automatic enrolment minimum requirements, paying in well above the 3 per cent minimum and this is great news for their employees. If an employee has opted out of contributing to a workplace pension then such employers could reduce their contribution to 3 per cent in the interest of fairness.
Pensions are an integral part of employee benefit packages; I firmly believe a minimum 3 per cent employer contribution should be universal.
Neil Carberry, the chief executive of the Recruitment and Employment Confederation, a trade body
One of the great public policy successes of this century is pension reform. Automatic employee enrolment in private pension schemes has transformed how people save for retirement.
That reform was built on the idea that pension saving is a partnership between employers, government and workers. All must contribute to meeting the savings challenges we face in later life.
Changing this — and loading costs on to employers — would disrupt pensions in this country, and not for the better. It would take them away from being a benefit for workers and make them more of a payroll tax.
Britain already has relatively high payroll taxes, because employers’ national insurance, which few realise is the biggest business tax, has been an easy one for chancellors to increase. When you add that on top of the apprenticeship levy, the cost of employing staff for businesses has risen.
If employers have to do more, other budgets would be squeezed. Economists warn that firms pay for higher pension costs by lower cash wage increases. At a time when we are recovering from high inflation — and when our economy needs a boost — that is not the best idea. And it is quite regressive.
• Can I give my pension to the grandchildren inheritance tax-free?
The state pension increases every year and more workers are saving. Lower earners should be able to fund the income they need in retirement from these sources. Stagnating their wage growth to fund more generous pension contributions seems like a decision for the worker to make, not the government.
The government — whose main aim is economic growth — should not be forcing companies to put investment into pension schemes above other things. We want businesses to pay people well, to invest more in training and in research and to help with challenges like mental health. But funds are finite.
Britain has a proud history of employer-provided pensions — only the US has more funded pension assets — and firms who can do more voluntarily, will. But it has to be a partnership, and changes brought forward by the government should reflect this.