Pension deficit could hit small businesses hard

Employers are likely to pay the cost of the nations's retirement shortfall with small businesses being the hardest hit, warn PKF accountants and business advisors.

A rise in NIC, expected to be announced in the forthcoming Pre Budget Report, means that employers have to start planning now for how this will effect recruitment and salary rises in the coming years.

With an election around the corner, PKF is advising that the Government is unlikely to take tough decisions now, however it is important that employers begin planning as early as possible.

Peter Harrup, tax partner said, "Labour's post-election conclusions will probably be that the amount currently received from National Insurance Contributions will not be enough to fund the state pension in its current form, that we all need to save more and that we should be compelled to do so.

"Increasing the retirement age from 65 to 70 is unlikely to be acceptable at any stage in the political cycle."

The Government introduced stakeholder pensions in April 2001: at present they are only set up to receive voluntary contributions made by employees but they could be a vehicle for compulsory contributions – so the necessary vehicle is already in place. Learning from other countries, the Government could reinforce the case for compulsory contributions by pointing to Australia where employers must pay a "Superannuation guarantee charge" of up to 9% if they do not make contributions to an approved pension scheme for employees.

Peter Harrup said: "It seems obvious that the existing arrangements for the state pension will have to continue, but at the expense of increased employee and employer National Insurance Contributions. This will probably need to be topped up with another pension with further compulsory contributions made by both the employee and employer.

"Businesses will need to know whether this is the Government's intention so that they can build this into any future planning on recruitment and salary rises in coming years. I would like to think that if this were the proposal then there would be sufficient lead in time to allow businesses to make their own difficult decisions."