taking a break

I don’t think Gordon Brown was particularly sensible when he cut the tax breaks on employer pension contributions. But this ended an incentive for businesses to contribute. It didn’t force them to stop, as is now being widely claimed. And when it comes to cutting pension contributions, business generally doesn’t need much of an incentive:

In the good times employers took £19bn of worth of pension fund contribution holiday in the 12 years to 2000. But it's more than simply offloading risk; employers are paying much less. On average employers cut their contributions drastically when they change the basis of the scheme from final salary to money purchase or even worse, stakeholder. In stark contrast to a final salary scheme where the employer pays more than the employee, in defined contribution schemes, which many employers want to replace final salary schemes, an employer may simply match contributions £ for £ with a ceiling of between 5% to 7% (it can of course be more).

And this at a time when, as Chris points out, business profitability is consistently rising. Brown’s failure here is New Labour’s – a business friendly government which declines to either force or encourage employers to live up to their responsibilities.

Comments

[Dan Hardie]

'Brown’s failure here is New Labour’s – a business friendly government which declines to either force or encourage employers to live up to their responsibilities.'

...Or which fails to bite the bullet, admit that some problems can't actually be best solved by the private sector, and sets up a genuinely inclusive state sector pension fund on the lines of US Social Security. Apart from anything else, it seems to me damn silly to suggest that we all get company-based pension funds when all the surveys show that UK workers are increasingly changing employers.

As was pointed out when Bush tried to scrap Social Security, the system that FDR, Hopkins and various very smart actuaries designed in the '30s actually does an even better job of responding to the conditions of the early 21st century. One of the few pieces of design that really was literally 'ahead of its time', ie improved as conditions became more complex. (Bonus military/aeronautical analogy for Alex Harrowell: like Mitchell's design of the Spitfire wings...)