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Employers must raise pension contributions to 10% to avoid compulsion

Employers need to increase their pension contributions to around 10 per cent if they are to avoid compulsion, according to the Government-sponsored Employer Task Force.

The taskforce, headed by Sainsbury’s chairman Sir Peter Davis, says only combined contribution levels of between 10-15 per cent shared on a 2:1 basis between the employer and employee will avert a pension timebomb.

In an indirect attack on means testing, Davis calls for greater clarification on how investing in an occupational pension scheme will affect state benefit entitlement later in life. This is particularly the case among low earners and has led to fears that any auto-enrolment initiative could result in misselling claims further down the line.

The taskforce is also calling on the Government to introduce greater tax incentives for smaller firms to contribute to occupational schemes and to launch a major marketing campaign highlighting the need to save for retirement.

The report recommends that the Government set up a central website for employers outlining the benefits of contributing to occupational schemes and the tax breaks.

Work and Pensions Secretary Alan Johnson says the Government has accepted this recommendation and is looking at how best to set up a web-based good practice for employers website as well as looking at ways of specifically targeting smaller employers.

Davis believes a review of the annuity market is needed to attract more providers.

Davis says: “This is the last-chance saloon for voluntarism. If business fails to grasp this opportunity, it will face higher taxes and/or compulsion in the future.”

Johnson says: “Some of the recommendations are for the Government and we will carefully consider these alongside the work of the Pensions Commission.”

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