The Association of British Insurers is to present government with a new proposal for tax breaks as a...
The Association of British Insurers is to present government with a new proposal for tax breaks as a way of encouraging employers to contribute to pension schemes and help solve the country's looming pension crisis.
The Pension Contribution Tax Credit, PCTC, is designed to provide employers with an incentive to contribute to pensions, increasing the number of employer sponsored schemes and encouraging employees to save for their futures.
"It will enable employers to contribute £100 to an employee's pension scheme at a cost of less than £60, compared to £80 now," the ABI says.
The government has stepped up its look at ways of improving the pension system in the face of declining final salary schemes and the low rate of average savings in stakeholder schemes.
The ABI believes the PCTC will be practical and workable.
It predicts that the credit could reduce by £2.8bn the current £27bn savings gap, and claims it would be a low cost option for government and employers alike.
But Andy Milburn, promotions manager for pensions and e-commerce at Royal & Sun Alliance, disagrees with the ABI's view.
"I think the ABI's proposal is unworkable. It is being naïve in thinking the government will chip in more when this is what they have been trying to avoid. The idea penalises businesses rather than helps them."
The credit proposal has put added pressure on Andrew Smith, the new Department of Work and Pensions minister, who called for employers to encourage workers to stay in the work place longer and for a simplification in pension schemes at the TUC pension conference last week.
Milburn suggests that pensions lock people in for too long, making them less likely to contribute to their pensions and opting to put the money in a building society account for better liquidity in times of need.
"The money in pensions should be accessible for different lifetime events. There should be one tax regime and one pension scheme. The pension industry in America is a good system. Employees get no tax relief unless 60% of the work force join the pension scheme. This provides them with the incentive to encourage their colleagues into obtaining a company pension and this would be a good way of improving the crisis."
With Alan Pickering's review of the pension industry due to be released in the next few weeks there is mounting speculation over whether compulsion will be encouraged.
Andy Milburn does not believe this will be the case.
"Employers have already been hit by the rise in National Insurance in March. I don't think it's likely that the government will go with the idea of compulsion until after the next election."
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