Trends and Analysis

Submitted by Stefanie Ives on 01/03/2011

If you Google “2012”, it comes up with the science fiction disaster movie where half the planet is swept away by a giant tsunami and earthquakes shake the world into a pulp.

Having worked in the Government, I remember some mutterings from the pensions and business industry about the appropriateness of the title when considering the seismic changes scheduled in 2012, particularly around auto-enrolment. It is safe to say that the costs to UK business in compulsory pension contributions alone have led to more than one HR director and small “one man band” businessman wiping his brow.

While everyone accepts the need for people to start saving into a pension, it seems that the syndrome of “someone really ought to do something about this” prevails. This is not to denigrate the very real costs forecast under the new pensions legislation; far from it. However, the country at large needs to accept a few inconvenient truths.

Whether you like it or not, the fact that few people turn up their toes at the age of 50 has created a real funding gap – the old system was built on the understanding that people would very kindly shuffle off their mortal coil before claiming. With the rise of the NHS, better food and a higher standard of living, the goal posts changed. And, if you don’t subscribe to the Godfather school of thought, this ultimately needs to be paid for.

So why shouldn’t the state pay for it? Well, it does - with the NHS, the state pension (which was raised in April 2010) and various fuel payments and credits for pensioners. So what about the individual, I hear you cry? Well, they will. They will work for longer, and will be taxed to the hilt while doing so to pay for the older generation’s state pension provision. Which leaves business.

While it would be easy to replay old discussions around costs and dampening innovation, this is where the inconvenient truth comes in. Ultimately, if we remove auto-enrolment and compulsory workplace saving, are we saying that no one will be left with a bill? Of course, they will. The deficit will still be there. And business and their workers will pay in even bigger tax hikes and service cuts that would make the last Budget look like a light piece of reading on a Sunday afternoon.

Pensions need to be funded, and if not achieved through one avenue, it would be got by other means. Even if business avoided the new duty on workplace pensions, it would just get hit with a higher bill for Corporation Tax, which would be put towards the same goal but under a different pretext.

And we can take comfort in that UK PLC is not alone. Across Europe, the US and Australasia, people are being told they have to work longer with higher taxes while businesses take a hit on workplace pension contributions. With or without the Credit Crunch, we would have been up the financial creek without the proverbial paddle. It’s a fact that is unpalatable, unpopular and politically horrendous to sell but one thing it is, is true. The buck ultimately stops with us all and it’s not likely to change any time soon.