Government urged to adopt pension plan for SME

The Government has been called upon to set up a tax credit scheme so that more small businesses will offer a pension plan to their workers.

Sir Peter Davies, chairman of the Employer Task Force on Pensions, says firms face higher taxes or compulsory pension payouts if they continue to ignore the voluntary system.

He argues only with an incentive will entrepreneurs have a chance at improving the "dire state" of pensions in the UK, something he believes lay firmly at the foot of government.

"We've got to get small business moving on this and we've got to have some sort of incentive scheme," said Sir Peter.

"The research and development tax credit was often mentioned by small business people who took part in our research."

Under a similar scheme, he said employers' contributions could be offset against their tax bill at 100 per cent or greater, so the sector would benefit from a "very simple rule of thumb."

Such a system would supersede the previous credit regime, which has been condemned for changing so much, it failed to give employers a clear idea of the benefits available.

According to the Times, only 10 per cent of businesses with less than 100 staff contribute to a company pension scheme.
That is out of a total figure of 12 million people - representing the number employed by small and medium-sized firms nationwide.

Research from Aon, the insurance broker, supports the bleak outlook, as only 20 per cent of Britain's defined pension schemes have a contribution rate of more than 10 per cent.

As a result, small business groups have welcomed the proposal for pension action, despite the already wasted £17.2bn from the Treasury, introduced to encourage more people to save.

Stephen Alambritis, of the Federation of Small Businesses, said pension incentives were fine as long as they were coupled with a programme to help people understand the value of saving for retirement.

Proposals suggest employers would aim for a combined pension contribution levels of 10 to 15 per cent of salary, on 2:1 ratio, meaning for every pound a worker saves, the company puts in £2.

Outside of the pensions plan, is the recommendation government should look at more flexible savings products, that can potentially be a pension savings vehicle.

The findings from Sir Peter Davies follow a new report out last week, which outlined a simple Citizen's pension, to replace the myriad of state provision with a single flat rate payment.

The pension of £105 per week would immediately benefit some eight million pensioners, who currently receive under the offered amount.

Christine Farnish, at the National Association of Pension Funds, said last week that Britain's state pension system is horrendously complicated.

"Despite the availability of 27 different benefits, the system still fails to deliver a fair deal to millions of pensioners. Means testing is expensive to administer and only two thirds of those eligible claim. It also discourages people from saving. Contracting out adds further to the complexity of our system.

"The beauty of the Citizen's Pension lies in its simplicity. The state will provide £105 a week, and any saving you do on top of that is yours. Immediately, the deal from the state is clear. Anyone wanting a better income in retirement understands the need to make an additional saving, either through a workplace pension or some other means.

"This report is an important step towards a simpler, more robust state pension system. It does not claim to provide all the answers, but it demonstrates for the first time that a Citizen’s Pension is do-able. We hope it leads to an informed debate about a Citizen's Pension in the UK, which the NAPF believes is part of the answer to Britain's pressing pensions problems."

More on freelance pension


15th December 2004

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