In depth: NI contributions would have been the simpler move.
In 2012, every employer in the land will be required by law to auto-enrol their 'eligible' employees into a qualifying workplace pension scheme. Eligible employees will be those who have reached the age of 22, earn more than a minimum amount, and are not already in a pension scheme that meets the standard set by the legislation.
There are apparently more than 10 million employees who will be eligible for auto-enrolment, and they are working for just over a million different employers. Those employers will be responsible for identifying eligible employees and auto-enrolling them into qualifying schemes (with the massive new scheme of personal accounts as a default, where employers do not have qualifying schemes of their own available). Under these new regulations, employers will also become responsible for deducting the appropriate level of contributions and sending them to the pension providers. Every employer will have to do this regardless of size from the very largest corporations to our local chip shops.
This will, in my opinion, be quite a palaver for employers and will come with a massive education requirement. Where auto-enrolled employees decide to remain in qualifying schemes (they have the option of opting out, but only after they are auto-enrolled), they are required to contribute 4% of a band of earnings called 'qualifying earnings'. The taxman adds a further 1% in tax relief and the employer must add 3%, taking the total amount invested in the pension scheme to 8% of qualifying earnings.
There ought to be a simpler way for us to achieve the same result, without burdening employers with so much additional work. One way of doing that would be to introduce a new additional (but, for employees, voluntary) rate of national insurance contribution (NIC) for eligible employees and their employers 4% of band earnings for employees and 3% for employers. It could then be a requirement that such NICs could not remain in the Department for Work and Pensions' coffers, but would be moved to private sector occupational pension schemes or personal pensions through enforced contracting-out (a bit like the Joseph Plan from the mid 1970s).
The employees' 4% would attract tax relief, thus ensuring that the full 8% of band earnings becomes invested in the private sector, while utilising existing centralised processes of contribution collection and contracting-out that are tried, tested and functioning already. If nothing else, that could save a lot of money.
No need for a million employers and more than 10 million employees to be 'educated'; no need for all employers to build new HR processes; no real need to build the biggest private sector pension scheme in the world; no need, in fact, to reinvent the wheel.
First published in Pensions Week, 31 August 2009