Higher retirement age could harm small businesses

Private businesses will be forced to make job cuts and lower wage settlements to foot the bill for rising payroll costs, making employees the real victims if employers' three percent pension contributions become compulsory.

Richard Smith, employment services director at leading UK employment law advisors, Croner, believes that under the new proposals employers are facing a 'lose-lose' situation, he says: "Not only will employers have to make significant efficiency cuts to bridge the pensions gap, there is no firm evidence either to say that promoting pension contributions as an employee 'perk' has any positive effect on recruitment, retention or motivation."

"SME employers have nothing to gain from Lord Turner's recommendations," he says.

"If the private sector retirement age is raised to 67, compared to 60 in the public sector, this is potentially very damaging for SME employers. Not only in terms of cost, it will also make it increasingly difficult to attract the best staff, who are likely to consider it a no-brainer that the public sector will offer a more comfortable work/life balance and greater job security."

Commenting on the day-to-day impact of administering the proposed pension schemes, he says: "While larger organisations with established schemes may well be content with the idea of compulsion, smaller employers may have more issues around the time, cost and expertise to administer such schemes. We must also consider employers who may have only one or two employees - they would be ill-placed to run a scheme of any sort.

"The upshot is that, if private sector businesses are compelled to contribute to pensions, all employers will find this money from planned payroll budgets, meaning they will have to explore ways of improving efficiency, which could include job cuts and lower wages. This in turn disadvantages these businesses by making them less attractive as employers, so it really could be a double blow."