Call for employer pensions incentive

Companies should be rewarded for encouraging the take-up of occupational pension schemes with national insurance rebates, an industry body said today.

The Association of British Insurers (ABI) called on the government to introduce a pension contribution tax credit. This would refund national insurance payments to companies which made set contributions to their workplace scheme and counted at least two-thirds of their staff as scheme members.

The group estimated the move could increase pension saving by around £1.5bn a year, at a cost to the government of between £500m and £700m.

It also called for workers to be automatically enrolled in their company pension schemes, although they would retain the right to opt out.

It estimates that, if employers and workers both contributed just 3% of pay to a scheme, overall pension saving would rise by £4.2bn a year.

The ABI also called for the introduction of a workplace advice credit, which would be particularly targeted at small businesses, enabling firms to claim back up to 50% of the cost of providing a set amount of financial advice to each employee.

It said this could bring financial advice to four million workers over time, potentially encouraging an additional £2.1bn saving each year at a cost to the government of only £100m.

The proposals are part of a package of measures aimed at solving the UK's pensions crisis put forward by the ABI, which first put a figure on the UK's £27bn annual savings gap.

Stephen Haddrill, director general of the ABI, said: "There is no single 'magic bullet' solution to Britain's pension problem.

"We need a package of reforms to encourage a new savings culture throughout every part of our society.

"Our proposals cover both state and private pensions. They include measures to enhance the state second pension, encourage employers to contribute to their employees pensions and improve the provision of advice about long-term savings."

In its Serious about Saving report, the ABI also called for the state second pension (S2P) to be reformed and eligibility criteria for the basic state pension to be less stringent so that women and carers were no longer disadvantaged.

It is suggesting the earnings-related S2P should be reformed to pay out a flat rate as if everyone earned £15,000.

It added that contracting out of S2P should be abolished for people who earned less than £15,000, while people who earned more could sacrifice their entitlement to the flat-rate payment in exchange for earnings-related contributions to their private pension saving.

The group said the basic state pension and S2P should together pay out an income worth around 25% of average earnings, largely removing the need for means-testing.

It claimed the removal of means-testing as well as reforms to S2P should encourage an additional £3.7bn of saving a year.

Other reforms it is calling for include the introduction of more flexible annuity rules and products.

It said the government also needed to improve people's understanding of pensions and tax relief, while the financial services industry should provide better information on pensions for customers, reduce costs and reform the way financial advice is paid for.