Manufacturers offer generous occupation pension schemes, but they are a significant cost to business
With the Autumn statement looming, and pressures on employers growing, from uncertainty over BREXIT to exchange rate volatility, what could the Chancellor do in his first, possibly last, Autumn statement later this month to improve the lot of employers?
EEF has long campaigned for a comprehensive Industrial Strategy – with a major plank of this being a relentless drive to reduce the costs that bear down on business. For manufacturers, one of the most significant costs stem from their support for their occupational pension schemes.
Providing relief for employers supporting DB pensions schemes
In this years’ Autumn Statement submission, EEF called for some relief for employers supporting DB pension schemes. Of course, for employers who never provided a DB scheme at all, their position is markedly better than those who chose to demonstrate a commitment to providing realistic retirement incomes. So, it seems fundamentally wrong that employers who do, or did, provide a commitment to a defined level of retirement benefit – DB – find themselves in a worse position to those employers who, perhaps, provided no provision, and now provide pensions at the minimalist level of auto-enrolment.
Flexibility is key
So much for the moral case – what can Government do? In a word, flexibility. Funding flexibilities, adjusting scheme indexation and tweaking the growth objective of the Pensions’ Regulator could all provide some relief for employers with a DB scheme to support. In return, employers would then be able to invest and grow their businesses, and be better placed to withstand whatever the future will throw at them. To be clear, this is not about employer seeking to write off their responsibilities, its about managing them over the long term and providing the best guarantee that any scheme can have – a financially strong sponsoring employer.
Pensions policy has faced piecemeal reviews and superficially attractive reforms
UK pension funding has suffered since the momentous referendum. Interest rates have only worsened the funding position of pension schemes and for those with DC schemes, the amount that they can expect to get for their pension pots is terrifyingly low. So, in addition to some latitude for employers with the best – DB – pension schemes, we need to look closely at what retirement will look like for the majority of today’s workforce. Which mean DC. There is no silver bullet, but rounds of piecemeal reviews and superficially attractive reforms have only complicated the message.
Keep it simple
So, we need to keep it simple - Pensions are lifelong savings - designed to provide an income in retirement. Hopefully the Autumn statement will reinforce this, support employers, and, this time, avoid treating pensions as some other tax-efficient savings plan.