If employers are made to pay more into pensions, they will make cuts elsewhere, one employer has said, and suggested future increases would need to be balanced alongside additional taxes employers are paying.  

The question ‘who pays’ was asked at a panel session about the Pensions Commission during the Pensions Management Institute’s annual conference on Wednesday, but no clear consensus was reached on how expected contribution increases will be financed. 

Some did not even agree that contributions were the central issue. “I'm glad to see that the commission has taken a broad view of adequacy. It's not just contributions going in, but clearly that is going to be a big focus,” said the head of pensions at First Bus, Muntazi Hadadi, adding: “My prediction is that the report is going to recommend increasing minimum contributions. It's also probably going to get rid of the qualifying earnings band. So I think any employer looking at that report is going to think, ‘Who's going to pay for this?’” 

Hadadi said that “the employer can pay, but they'll just make cuts somewhere else. That's what will happen.” 

A long lead-in time with stepped increases could help with making employers feel more comfortable, he agreed, “as long as the rest of the tax regime works alongside it as well. Because the national insurance change recently was really hard.”

Hadadi said extra contributions had to be affordable for employees too, because people “need money today”, although he acknowledged that many have a false sense of security from being auto-enrolled. 

Cost is not even the only barrier for employers. He suggested many employers do not want to put more into pensions than they absolutely have to, adding: "I think the reason for that is when you're looking at recruitment and retention, putting more money in contributions doesn't really have that much of an impact on employees, really.”  

Changes in the hourly rate, free tea and coffee or refurbishing the canteen or toilets can have a “huge” impact on how people feel about an employer, he said, whereas “I don't think it's going to turn the dial that much in terms of getting people to come and work for us if we give a bit more in our pension, unfortunately”.

For Jack Jones, pensions policy lead at the Trades Union Congress, the potential lack of recruitment advantage from higher pension contributions is a good argument for legislating: “If you're not going to benefit from making that decision as a company... you kind of want everyone to have to do it at the same time.” 

Jones was clear that in the TUC’s view auto-enrolment increases should mean “putting as many of the additional contributions as possible onto the employer side”, warning of rising opt-outs if employees are asked to contribute more.  

The UK is unusual among European countries in requiring higher minimum pension contributions from individuals than it does from employers, at 5% and 3% respectively. Pensions UK has been calling for an equal split of 6% each.

Since the end of the auto-enrolment rollout, employer contributions to DC schemes have flatlined at about 3%. This is despite many having benefitted from a fall in defined benefit deficit payments.

Speaking at the same event, pensions minister Torsten Bell said the current high funding level of many DB schemes was a boon for companies: “It never gets talked about, but it is an absolutely huge cash flow benefit to British employers that's taken place over the course of the last few years.”