Employers in the United Kingdom could be forced to make mandatory contributions to occupational pension plans unless they do more to encourage employees to contribute to the current voluntary system, a government appointed task force says.

The Employer Task Force on Pensions, which was established in 2003 to advise the secretary of state for Work and Pensions, last week published a report recommending that the current system of voluntary contributions to occupational pension plans be maintained.

But Sir Peter Davis, chairman of the task force and a former chief executive of Sainsbury’s Supermarkets Ltd., said that while the task force is not yet recommending compulsory pension contributions it is the “last-chance saloon for voluntarism.”

The report made several recommendations to employers and the task force also published a guide detailing case studies of pension plans it deemed to be good practice (see story, page 15).

Employers are only one part of the solution to the problem of inadequate retirement savings, Sir Peter said, but “we urge them to do what they can” to help increase private savings for retirement. Key to this effort is establishing a higher overall level of employer contributions to occupational pension plans, he said.

Currently, the total average contribution to occupational pensions is inadequate, according to the report. Average contribution rates, including employer and employee contributions, average between 7% and 11% of employee salary, the report notes.

However, contributions should average between 10% and 15% to ensure adequate retirement savings, the report notes. Employers should provide at least two thirds of the contributions, the report recommends.

Employers should also review the types of pension plans they offer, Sir Peter said. Over the past several years, many employers in the United Kingdom have closed their traditional defined benefit plans in favor of other plan types. But the change in plans can lead to significant differences in the level of pension benefits for employees that are doing similar jobs, he said.

“We urge employers moving away from defined benefit schemes to consider career-average schemes or one of the new hybrid schemes,” he said.

Employers should also improve communications with staff regarding retirement savings, the report said.

Employers should work with their employees and the government to take steps to increase retirement savings if mandatory contributions are to be avoided.

“We ought to have one last go to make the voluntary system work,” Sir Peter said.

An independent commission on pensions is due to release its recommendations to the Government in the fall of 2005, so employers should strive to show before then that a system of voluntary contributions can work, Sir Peter said.

Pension experts and employer groups generally welcomed the task force’s report.

The Confederation of British Industry, which opposes mandatory employer pension contributions, welcomed the report’s “emphasis on reinvigorating the voluntary pensions system.”

A spokesman for the CBI said that the employer body believed a move to compulsory contributions would be a virtual tax on jobs. And he noted that the CBI calculated that such a move could cost U.K. employers £22 billion ($42.24 billion).

The London-based British Chambers of Commerce also welcomed the report.

“The task force is right to reject compulsion. Compulsory contributions would involve great costs for firms and could damage the U.K.’s competitiveness,” BCC President Bill Midgley said in a statement.

And a spokesman for the Engineering Employers Federation said that the association was not in favor of a move to mandatory pension contributions.

“Any move towards compulsion would open a series of complex issues and could not be contemplated by manufacturers unless it formed part of a satisfactory long-term solution to future pensions policy,” David Yeandle, deputy director of employment policy at the EEF, said in a statement.

Benefit consultants also welcomed the report’s recommendations.

Deborah Cooper, a consultant at Mercer Human Resource Consulting in London, said that forcing employers to make pension contributions would likely force average wages down.

Alan Pickering, a consultant at Watson Wyatt Worldwide in London, said that making pension contributions compulsory-either for employers or employees-would not increase the awareness of the need for pension savings among individuals. He said that better education was needed to allow employees to make informed choices about their pension savings.

The 14-member Employers Task Force is made up of employer and trade union representatives, and was advised by a 16-person advisory group that included pension experts, lawyers and actuaries.

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