Hutton eases small firms' pension fears

The government will not force employers to contribute to workers' pensions without making efforts to minimise the impact on firms, the work and pensions secretary, John Hutton, will say today.

Mr Hutton will tell the Federation of Small Businesses (FSB) conference in Manchester that the decision on whether to adopt the compulsory national pension savings scheme (NPSS) recommended by the Pensions Commission is "finely balanced".

But he will say that employers have an "absolutely fundamental" role in successful pension provision.

"Employer contributions don't just add value to the pensions savings of an individual they can also act as a catalyst for employees to save more themselves," he will say.

Industry chiefs have warned that forcing employers to adopt such a scheme could send some firms to the wall and hit jobs.

However the pensions secretary will say he will "look very closely" at how to soften the blow of introducing such a scheme.

"Perhaps the most significant challenge for government today is in my area of responsibility - namely advancing a new pensions settlement that benefits all employees without imposing undue burdens on business.

"In particular, the question of whether to compel employers into a national pension savings scheme is a very finely balanced one.

"We've got to be mindful of the burden this would impose on small employers as well as the potential employment implications.

"So let me make one thing clear: should we go down this road, we will have to look very seriously at how these burdens can be minimised."

He will add: "In previous years many employers saw Labour as having an anti-business outlook - in part because of our origins as a political movement and because of our previous record in government. That charge cannot be made against New Labour.

"While the Conservatives have never regained their reputation as the party of business after the bitter recessions that scarred their years in office, this government fully recognises our country's economic health depends on the success of small businesses."

"Our drive to deliver opportunity for all cannot succeed without a strong economy and a climate that rewards hard work and risk-taking."

The NPSS was one of a range of measures recommended by the Pensions Commission as a way to encourage people to save more towards their retirement.

The commission said workers should be automatically enrolled into the scheme, although they would have the chance to opt out, and they would have to contribute 5% of their salary, with their employers paying in 3%.

A spokesman for the FSB said its members were concerned that the 3% charge would effectively "be a 3% tax on their business".

"Our members are very small businesses - the average employee number is four," he said.

"Many of them don't offer pensions already so forcing them to set up a scheme would essentially be a huge extra hurdle for them."

The FSB's stance is backed by the CBI, who last month told the government that the introduction of the NPSS could affect job creation.

Firms should instead be "cajoled" into voluntarily contributing to an employee scheme, the CBI argued, and given the same rights as employees to opt out.

The CBI's deputy director general John Cridland said: "Forcing employers to contribute is neither fair, nor equitable or sensible.

"As the Pensions Commission says, it is not right to tell a 21-year-old striving to pay off his student debts, or saving for a deposit for a flat, that he must first save for his pension.

"So why should a small company be forced to pay into a pension scheme if doing so could put it out of business or prevent the creation of new jobs?"