The government's proposals to shake up the state pension will put retailers out of pocket, discovers Helen Gregory
We all look forward to retiring, but we're constantly warned that we might not have enough money to enjoy our old age. It's all down to the fact that one-quarter of the population will be over 65 in 30 years' time, younger people aren't saving enough and the value of the basic state pension compared with average earnings is falling. The solution? Raise the retirement age to 68 and force people to save for their old age.
These are just two of the suggestions in the government's Pensions White Paper, which aims to shake-up the system by introducing Personal Accounts into which workers will be automatically enrolled if they aren't already
in a company scheme. They would contribute 4% of their post-tax earnings, while the company would put in an extra 3% and the government would add 1% through tax relief or credit.
This scheme looks like a good deal for employees, but will increase
employers' costs, says the Federation of Small Businesses (FSB). According to the Association of Convenience Stores (ACS), it would put 1% on wage costs.
"It will be a tax too far for small businesses," says FSB policy chairman Wilfred Mitchell. "Most small employers simply cannot afford it and would be forced to make damaging cuts in other areas."
The FSB reckons that individuals should take responsibility for their own pensions, and while employers should help if they're able to, the fundamental decision to save for retirement should be down to the individual.
Despite such reservations, the introduction of Personal Accounts is pretty much a done deal, although the government is now consulting on how the scheme will be run and business groups are trying to minimise their impact on small firms which don't have HR departments to untangle red tape.
The decision has yet to be made on who gets to run the new national savings scheme: the government or the insurance industry. However, it's likely that Personal Accounts will be phased in over a three-year period, with companies contributing 1% in 2012, when the scheme starts, and working up to 3% over three years, to lessen the impact. Both the FSB and ACS welcome the idea that retailers won't be hit immediately, and so should have time to prepare themselves, but they both voice concerns about the administrative burden on small firms. They want Personal Accounts to be organised through current systems, so that employers don't have to set up completely new processes and potentially fill out two lots of paperwork, thereby doubling their workload.
"We hope that the administration of the scheme will be made easier," says an FSB spokesman. "A whole new system would be complicated - it would be better if it could be run through existing systems such as National Insurance contributions."
There is also the issue of enrolment in the scheme. The government has gone for a system of soft compulsion, which means that employers will be automatically enrolled from 2012 - with the hope that savings rates will increase because people will think it's too much bother to opt out.
However, not everyone will want to join the scheme, according to the Pensions Policy Institute. It believes that a combination of career breaks and low earnings would make Personal Accounts particularly unsuitable for people in their 40s and 50s.
But the ability to opt out could create more paperwork for small firms,
especially retailers, because of the high turnover in the industry. After all, retail staff may start work and then leave a few weeks later.
The ACS says that because many employees work on a probationary period, it would make sense to enrol the staff member once this trial period was up, and the FSB reckons there should be a minimum threshold of at least six months before an employer would need to contribute to an employee pension.
And if that wasn't enough, there could be one more potential headache for retailers. It looks likely that there will be various funds that Personal Accounts can be invested in, so staff may turn to retailers for advice on where they should put their money, turning employers into financial advisers.
Retailers are already coping with a host of financial and regulatory burdens. In October we'll get the latest increase to the minimum wage, while in the past year or so there have been new rules on increased holiday entitlement and maternity and paternity rights - not to mention the usual costs of running a business and increased competition from the
multiples. Some fear that more costs could lead to reduced staffing, under-investment, longer working hours and a reduced ability for store owners to fund their own pensions.
Chris Mitchener, who runs Swan Street Stores in Hampshire, believes it will be a real burden on small
businesses. "We can't suddenly start selling more because the government wants to take more money from us. Some retailers might quit altogether."
However, a lack of pension is an issue for many retail staff. Dilip Patel, who owns a Spar in Beckenham, Kent, knows his staff don't have pensions and are worried about their retirement. "The state pension probably won't cover their needs so I'm sure they'd be interested in having a new pension, particularly if employers contribute towards it, but I'm worried about the effect it will have on me, as retail sales aren't going up."
It's tough for owner-managers, but companies that have multiple stores would have potentially hundreds of Personal Accounts to manage. Gilletts employs about 600 staff at its stores in the South West, one-quarter of which are full time.
Personnel manager Vanessa Whitting says, "I can't see many of the part-timers wanting to do it as so many are on the breadline anyway."
However, Spar c-store chain Lawrence Hunt has run a pension scheme for managers for 20 years. It allows staff to contribute 3-5% of pay, which is matched by the firm.
Finance director Francis Chaney says the scheme helps with recruitment and staff retention and that 60 managers have joined up. Ironically, it had planned to extend the scheme to other staff before the pensions announcement.
Chaney believes that it's not just retailers who will feel the pinch when the new system kicks in, though. "It will be hard for people working part time on the minimum wage, especially those just getting pin money or working to get family tax credit." He adds: "We will absorb the costs, though."
But not all retailers are too concerned. Richard Hipkin, who runs a Londis in Marks Tey, Essex, reckons that it's a good idea to get staff saving. "It shouldn't break the bank," he says philosophically. "I don't think it will be a particular administrative burden - anyway, my accountant deals with all that!"
Age on 5 April 2006 Eligible for state pension from:
46 between 65th and 66th birthday
38-45 66th birthday
37 between 66th and 67th birthday
29-36 67th birthday
28 between 67th and 68th birthday
27 or younger 68th birthday
Source: Department for Work and Pensions
The state pension age for men and women will rise to 68 by 2044
During the next parliament, the state pension will become more generous and future increases will be linked to earnings rather than prices
The number of years it takes for people to qualify for a full basic state pension will be cut to just 30
From 2012 workers will automatically be enrolled into a new, low-cost national savings scheme, although they have the chance to opt out if it's not suitable for them
We all look forward to retiring, but we're constantly warned that we might not have enough money to enjoy our old age. It's all down to the fact that one-quarter of the population will be over 65 in 30 years' time, younger people aren't saving enough and the value of the basic state pension compared with average earnings is falling. The solution? Raise the retirement age to 68 and force people to save for their old age.
These are just two of the suggestions in the government's Pensions White Paper, which aims to shake-up the system by introducing Personal Accounts into which workers will be automatically enrolled if they aren't already
in a company scheme. They would contribute 4% of their post-tax earnings, while the company would put in an extra 3% and the government would add 1% through tax relief or credit.
This scheme looks like a good deal for employees, but will increase
employers' costs, says the Federation of Small Businesses (FSB). According to the Association of Convenience Stores (ACS), it would put 1% on wage costs.
"It will be a tax too far for small businesses," says FSB policy chairman Wilfred Mitchell. "Most small employers simply cannot afford it and would be forced to make damaging cuts in other areas."
The FSB reckons that individuals should take responsibility for their own pensions, and while employers should help if they're able to, the fundamental decision to save for retirement should be down to the individual.
Despite such reservations, the introduction of Personal Accounts is pretty much a done deal, although the government is now consulting on how the scheme will be run and business groups are trying to minimise their impact on small firms which don't have HR departments to untangle red tape.
The decision has yet to be made on who gets to run the new national savings scheme: the government or the insurance industry. However, it's likely that Personal Accounts will be phased in over a three-year period, with companies contributing 1% in 2012, when the scheme starts, and working up to 3% over three years, to lessen the impact. Both the FSB and ACS welcome the idea that retailers won't be hit immediately, and so should have time to prepare themselves, but they both voice concerns about the administrative burden on small firms. They want Personal Accounts to be organised through current systems, so that employers don't have to set up completely new processes and potentially fill out two lots of paperwork, thereby doubling their workload.
"We hope that the administration of the scheme will be made easier," says an FSB spokesman. "A whole new system would be complicated - it would be better if it could be run through existing systems such as National Insurance contributions."
There is also the issue of enrolment in the scheme. The government has gone for a system of soft compulsion, which means that employers will be automatically enrolled from 2012 - with the hope that savings rates will increase because people will think it's too much bother to opt out.
However, not everyone will want to join the scheme, according to the Pensions Policy Institute. It believes that a combination of career breaks and low earnings would make Personal Accounts particularly unsuitable for people in their 40s and 50s.
But the ability to opt out could create more paperwork for small firms,
especially retailers, because of the high turnover in the industry. After all, retail staff may start work and then leave a few weeks later.
The ACS says that because many employees work on a probationary period, it would make sense to enrol the staff member once this trial period was up, and the FSB reckons there should be a minimum threshold of at least six months before an employer would need to contribute to an employee pension.
And if that wasn't enough, there could be one more potential headache for retailers. It looks likely that there will be various funds that Personal Accounts can be invested in, so staff may turn to retailers for advice on where they should put their money, turning employers into financial advisers.
Retailers are already coping with a host of financial and regulatory burdens. In October we'll get the latest increase to the minimum wage, while in the past year or so there have been new rules on increased holiday entitlement and maternity and paternity rights - not to mention the usual costs of running a business and increased competition from the
multiples. Some fear that more costs could lead to reduced staffing, under-investment, longer working hours and a reduced ability for store owners to fund their own pensions.
Chris Mitchener, who runs Swan Street Stores in Hampshire, believes it will be a real burden on small
businesses. "We can't suddenly start selling more because the government wants to take more money from us. Some retailers might quit altogether."
However, a lack of pension is an issue for many retail staff. Dilip Patel, who owns a Spar in Beckenham, Kent, knows his staff don't have pensions and are worried about their retirement. "The state pension probably won't cover their needs so I'm sure they'd be interested in having a new pension, particularly if employers contribute towards it, but I'm worried about the effect it will have on me, as retail sales aren't going up."
The company effect
It's tough for owner-managers, but companies that have multiple stores would have potentially hundreds of Personal Accounts to manage. Gilletts employs about 600 staff at its stores in the South West, one-quarter of which are full time.
Personnel manager Vanessa Whitting says, "I can't see many of the part-timers wanting to do it as so many are on the breadline anyway."
However, Spar c-store chain Lawrence Hunt has run a pension scheme for managers for 20 years. It allows staff to contribute 3-5% of pay, which is matched by the firm.
Finance director Francis Chaney says the scheme helps with recruitment and staff retention and that 60 managers have joined up. Ironically, it had planned to extend the scheme to other staff before the pensions announcement.
Chaney believes that it's not just retailers who will feel the pinch when the new system kicks in, though. "It will be hard for people working part time on the minimum wage, especially those just getting pin money or working to get family tax credit." He adds: "We will absorb the costs, though."
But not all retailers are too concerned. Richard Hipkin, who runs a Londis in Marks Tey, Essex, reckons that it's a good idea to get staff saving. "It shouldn't break the bank," he says philosophically. "I don't think it will be a particular administrative burden - anyway, my accountant deals with all that!"
Age and the state pension
Age on 5 April 2006 Eligible for state pension from:
46 between 65th and 66th birthday
38-45 66th birthday
37 between 66th and 67th birthday
29-36 67th birthday
28 between 67th and 68th birthday
27 or younger 68th birthday
Source: Department for Work and Pensions
Pension proposals
The state pension age for men and women will rise to 68 by 2044
During the next parliament, the state pension will become more generous and future increases will be linked to earnings rather than prices
The number of years it takes for people to qualify for a full basic state pension will be cut to just 30
From 2012 workers will automatically be enrolled into a new, low-cost national savings scheme, although they have the chance to opt out if it's not suitable for them
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