The issue of compulsion and pensions has just received another airing with the publication of research from the ABI into public attitudes to compulsion based on sampling a representative cross-section of the population.
The ABI's research shows that support for compulsion is mixed and heavily qualified. Seventy per cent of people earning over £40,000 a year would support compulsion at or below their current level of contribution. Only one in four people want compulsion that would affect them personally.
Forty-six per cent of people who support compulsion but currently have no pension savings are aged between 18 and 29. Opposition to compulsion rose from 14 per cent to 21 per cent when workers were made aware of possible effects on their wages.
Twenty-two per cent of people who opposed compulsion were part-time workers.
The ABI research does not cover employers although it contains the views of the self-employed which may give an indication of employers' views. Large attitudinal differences are seen between the self-employed and employed workers, with 28 per cent of the former and 16 per cent of the latter thinking that compulsion is a bad idea.
Employers viewed the national minimum wage with hostility when it was introduced and is it likely that they would object strongly to any future requirement to contribute to employees' pensions or for employees to contribute.
The Confederation of British Industry has historically opposed employer and employee compulsion, arguing that it involves a large increase in costs for small and medium-sized employers and threatens the competitiveness of the UK's SME sector.
The ABI's analysis of stakeholder pensions in August 2003 stated that while over 1.5 million policies had been sold, 82 per cent of employer-designated schemes were empty boxes and only 13 per cent of employers were making contributions to stakeholder pension schemes on behalf of their employees.
This demonstrates that many employers – mainly small organisations – have already shown their reluctance to contribute to employees' pensions so their opposition to compulsory pension contributions is inevitable.
This is unfortunate because experience shows that employees will generally contribute when they see that their employers are paying too.
Many employees on low earnings would not wish to be compelled to pay pension contributions simply because they need every penny they earn. They would prefer a pay rise. Even if they could afford to save money, they would want access in an emergency and would be reluctant to use a pension plan as it would tie up their savings to retirement.
The ABI rightly says that any Government initiative to increase compulsion above current levels would have to be carefully researched.
An area that could be investigated would be how additional compulsion could be achieved and what would be the consequences.
Currently, we are “compelled” to save through National Insurance contributions and the simplest way to increase compulsion would be to increase NI. However, the newspaper headlines are easy to visualise, along the lines of Government increases tax on your income or Nanny state cuts your take-home pay.
The problem is that NI contributions are not channelled solely into pensions but are effectively another means of collecting tax. Even if additional NI were to be hypothecated for pension benefits, the sceptical public is unlikely to believe that it would ever reap the benefits or that Governments would not change the rules of the game in the future to the detriment of the individual.
However, the additional NI contributions, having been collected, could be rerouted into a personal account for the member in the same way that NI rebates are paid into contracted-out schemes or like future Government contributions will be paid into the new child trust funds.
But that would complicate pension schemes even further. Systems would have to be set up to recognise and exempt those employers and employees who already contribute to pensions at the required level.
Currently, tax incentives underpin voluntary pension savings but clearly they are not sufficient for some employers. Other incentives are needed to encourage employers to do more for employees. A reduction in business regulations for model employers may be worth investigating.