EEF believes this initial financial support is needed to assist the many smaller firms that will face the additional costs of administering and contributing to personal accounts on behalf of their employees. It will also help to create an environment in which the small business community is more supportive of personal accounts, an important requirement for their successful implementation.
EEF Deputy Director of Employment Policy, David Yeandle, said:
“We support personal accounts and believe the role of smaller employers will be critical for their successful implementation given many of those who are not currently saving for their retirement work in small businesses. Government should take all necessary steps to gain the support of these employers for personal accounts and we believe there is a strong case for providing them with some initial financial assistance. “
EEF's model, which has been submitted to the Treasury, involves the government compensating smaller employers for a proportion of the contributions that they have made into personal accounts for their employees during the first three years of their operation.
Based on the government's proposed phased implementation of employer contributions into personal accounts and, using the Pensions Commission's assumptions about employee take up, EEF estimates that compensating smaller companies with up to 49 employees for half of their contributions would cost £221m in the first year. This would fall to £161m if this support was only provided to firms with less than 20 employees.
Whilst recognising that there are costs involved in providing such temporary assistance, EEF feels they are relatively modest in comparison to the savings to the Exchequer from the proposal to end contracted out rebates for defined contribution occupational pension schemes.
EEF also believes that concerns that targeting financial assistance at firms of a certain size would lead to them fragmenting into smaller groups in order to qualify for it are overplayed as "anti-fragmentation" legislation could be introduced quite easily. There are also a number of administrative and legal issues that would make the cost of such fragmentations unattractive, including the limited period of assistance, possible need for multiple VAT registrations and PAYE references, additional audits and multiple corporation/income tax filings.
ENDS
Notes to Editors
1. EEF’s figures are based on the White Paper’s announcement of the phasing in of employer contributions from 1% to 3% of a band of earnings over a three year period and the assumptions in the Pension Commission’s report about participation in their proposed National Pensions Savings Scheme.
2. They are based around the staged changes up to 2009/10 in National Insurance Contribution thresholds announced in the 2007 Budget. For consistency with these thresholds, EEF has assumed that average earnings (based on the 2006 Annual Survey of Hours and Employment) grow by 4% per year up to 2009.