UK - Occupational pension provision needed a boost from Gordon Brown in the Budget but instead, out of view, it received yet another kick in the teeth, according to consulting actuaries Lane Clark & Peacock (LCP).
As a result of the increase in National Insurance (NI), employers will see their cost base go up by 1% of payroll from April 2003. Where companies target an overall spend on their employees, without doubt some will be looking for ways to negate Gordon Brown’s NI hike.
LCP fears that pension provision is an obvious target. Francis Fernandes, partner at LCP said: “It is not difficult to envisage that some employers considering replacing final salary pension schemes with money purchase schemes for new employees will take the opportunity to cut contributions even further to try and claw back the employer’s NI increase.
“The problem is deciding how much to cut- back the employer’s rate of contribution - this Budget has set a precedent for possible future increases in NI yet further.
“What may be of even more concern to employees is that we might see more employers prepared to replace final salary schemes for existing employees with cheaper money purchase schemes, so as to offset the NI hit to the employer in relation to all employees.
“Who will be the losers in these circumstances? It will be down to employees to increase their retirement provision. The double whammy dealt by the Chancellor is that this extra money will need to come from individuals’ own pockets. However, Gordon Brown has ensured that their pay packets from April 2003 have just shrunk as they too will also be paying higher NI.”
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