EEF blog

This week saw the Pensions Minister, Steve Webb MP announce the long awaited reform of the UK’s state pension. The announcement was a major step forward in addressing our key pension challenges.

The proposals will have significant, far-reaching and long lasting effects upon employers and workers, and as such business leaders will have to prepare now for the changes which are to take effect.

Without change in the state pension, the UK faces challenges in pension provision which will in time be impossible to overcome. 

The numbers of workers saving in occupational pensions have fallen significantly, life expectancy has lengthened and workers face long retirement periods without an adequate income.  This would mean higher taxes on individuals and businesses as provision for the UK’s pensioners falls upon the working population.

A simple, more generous state pension will be a major boost for auto-enrolment by giving employees much greater certainty that is worth saving for their retirement.  In turn this will help employers play a crucial role in helping their employees secure decent incomes in retirement.

So what is on offer and will there be winners and losers?

The current complex state pension will be simplified into a single tier, worth £144 today.  The winners will be women and carers who will receive national insurance credits whilst not in work. The losers will be higher-earners who will pay in more and get less out and the young who are likely to have been better offer under the previous scheme.

What do employers need to do now?

Individuals, including employers, will need to accumulate 35 years’ of NI contributions to be eligible for the full state pension.  The DWP will set a lower contribution limit of between 7 and 10 years of contributions, below which no pension will be payable. Above this level, a proportion of the state pension will be paid.

The announcements this week will allow employers to mitigate the loss of contracting out relief but will need to act now. Employers with contracted out defined benefit (DB) schemes will face an increase in their national insurance contributions of 3.4%. The DWP estimate that as many as 80% of workers will, at some point, have been in one of the affected schemes.

Employers currently operating such a scheme will have a time-limited opportunity to adjust their pension scheme rules to compensate for the additional NI contributions which they will have to make.

Whilst the details have yet to be published, this is likely to allow employers to reduce member benefits or seek greater contributions – this is a significant concession which EEF has long campaigned for.

Whilst there are some clear wins for the manufacturing industry there is still work to do on wider pension reform including making auto-enrolment fit for purpose by removing the current restrictions on contributions.  

This blog was first published on People Management 

Today, the long-awaited Holt Review on apprenticeships was published, along with the government’s response. Back in February, entrepreneur Jason Holt was commissioned to look at how government can make it easier for small businesses to take on apprentices.

Holt’s Review concluded that there was still work to be done to raise awareness of the benefits of apprenticeships, help SMEs get the best from training providers and remove the barriers that prevent SMEs from offering this training. These are issues that we hear time and time again from members and so these findings are of little surprise. Little, then, seems to have changed since the Coalition took office.

Many of the recommendations included in the report would be welcomed by manufacturers. However, the government’s main focus was on promoting awareness of apprenticeship career paths with schools and developing a feedback system for employers to observe how other organisations experience training providers.

As with many government-commissioned reviews, only a handful of recommendations are to be immediately acted upon. Training providers will now pay employers the full amount of the Age Grant for Employers (AGE) of £1,500 13 weeks after the apprentice starts, grants will be available to businesses with up to 1,000 staff, employers can claim for 10 apprentices rather than just three and an employer will be eligible for a grant as long as they have not employed an apprentice in the last 12 months.

Manufacturers will welcome changes to the AGE criteria, improvements in the required responsiveness of providers and the focus on employers’ skill needs.

However, we should now look to government for tangible progress in the near term, in all these areas, which has so far been too slow. Employers must ask, what will be achieved and by when?

The manufacturing industry has a long and proud history of investing in apprenticeship programmes, but it was disadvantaged by the requirements of the AGE scheme. Previously this meant that only those companies that had not taken on apprentices in the past 36 months could access the funding. So these changes are welcomed.

Relaxing the requirements in the way government has outlined above will allow businesses to take on more apprentices and offer young people these opportunities. Although the grant is relatively small in comparison to the overall cost of delivering manufacturing apprentices, it will go some way to incentivising employers to take on an extra apprentice.

Statistics from August 2011 to April 2012 revealed that the number of manufacturing and engineering apprenticeships is 44,130, which is down on the previous year’s figures of 48,970. So again moves to encourage take up are welcomed.

But if the government is serious about encouraging more young people to take apprenticeships and more employers to offer apprenticeships, it must address issues such as poor careers advice, the status of vocational education and the regulatory burden which still prevents many small businesses from offering this training.