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Last Updated: Thursday, 25 May 2006, 12:53 GMT 13:53 UK
Pension plans hailed by industry
Pension book
The state pension age is to rise to 68 from 2044
The CBI, which represents UK businesses, has said it welcomes the government's white paper on pensions.

But it expressed deep disappointment at its decision to press ahead with compulsory employer contributions.

The EEF, the body representing manufacturers, has "strongly endorsed" the proposed reform.

Meanwhile, the TUC has said "ministers can be proud" of the document, which can be the foundation of a "new pensions settlement".

But the Institute of Directors (IoD), while broadly welcoming the package, said "the government may have lost a real opportunity to simplify the system for the 21st century".

Contributions outlined

As part of government proposals to strengthen pension provision in the UK, the state pension age is to rise gradually over the next four decades, reaching 68 from 2044.

The link between the state pension and earnings will also be restored within the next Parliament, as part of the government's white paper on pensions.

Employees will be asked to pay 4% of their salary into the scheme.

Employers must, in turn, contribute 3% while the government will contribute 1% in the form of tax relief.

The government's proposals will go a long way towards putting in place a sustainable, simpler and more transparent system of pension provision
EEF director general Martin Temple

Company contributions will be phased in over three years and some support will be offered to small businesses.

Speaking for unions, TUC general secretary Brendan Barber said they welcomed the "progressive paper".

"Better pensions have to be paid for, but the billions spent on pensions tax relief for higher rate tax-payers should also make a contribution," he said.

And Derek Simpson, general secretary of union Amicus, said: "The government's pensions white paper represents a victory for working people."

But he said the union was disappointed at the raising of the retirement age, which would "hit the working classes hardest".

'World of saving'

CBI director-general Sir Digby Jones said raising the state pension would remove disincentives to save.

"The price for a better pension is a higher state pension age, which the Government rightly recognises will have to rise gradually over the long-term."

A new savings scheme will be introduced in which employees will be automatically enrolled.

I believe it can lay the foundations for a lasting solution to the pensions challenge we face as a country
Pensions Secretary John Hutton

But Sir Digby also said that the benefits of restoring the earnings link and reducing means-testing introduced must not be introduced "without the nation understanding they must pay for it with the raising of the state pension age".

"Business also supports a new national savings scheme for those on low incomes and without access to an employer's occupational scheme," he said.

"We must get the young and the low paid into the world of saving. But there will be anxiety amongst the business community that the government is forging ahead with compulsory employer pension contributions despite the potential damage it could inflict on firms, particularly smaller ones."

'Boxes ticked'

Sir Digby also said that without a meaningful package of financial support, hard-pressed small firms will be left "high and dry" and it could cost the jobs of the very people the new proposals area designed to help.

Compulsion would cost employers 2.3bn per year, he claimed. And he said the CBI wanted a package worth 500m to help small business meet the cost.

"They can adjust prices, offer lower wage increases or absorb the costs through profits," a DWP spokesperson said in reaction.

At manufacturing body EEF, director general Martin Temple said: "The White Paper has ticked most of the right boxes for manufacturers.

"The government's proposals will go a long way towards putting in place a sustainable, simpler and more transparent system of pension provision; it must now seize the moment and ensure that it achieves maximum support for this package across the political spectrum and society as a whole."

And the IoD's Miles Templeman said: "We need to sweep away the complexity of the current system."

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