DWP disputes claim pension scheme will cost 200,000 jobs

THE Department for Work and Pensions (DWP) has hit back at claims that a government scheme forcing companies to offer retirement benefits will lead to the loss of up to 200,000 jobs because of increased labour costs.

A study by the University of Warwick's Institute for Employment Research concluded that the launch of the personal accounts pension scheme will be too much of a financial burden for many firms, forcing them to cut staff or close down.

Personal accounts are due to be introduced in 2012 and employers will have to pay 3 per cent of their earnings into each staff member's pension. Accounts will be available for all workers in companies which do not already offer a comparable retirement benefit. Staff will be automatically enrolled in the scheme, and if they do not opt out they and their employers have to pay into the pension account.

The University of Warwick said the Pensions Commission, and later the DWP, carried out their own cost estimates for the introduction of personal accounts which suggested it would lead to an increase in labour costs of 0.6 per cent for all firms and 1.1 per cent for the smallest firms.

However, the new research by Bernard Casey at the university indicates that if administration costs and salary levels are included and if the take-up level the government is aiming for is reached, personal accounts will lead to a 2 per cent increase in labour costs.

Casey calculated the number of firm closures, failures or redundancies likely to come on the back of the increase in costs. He estimated 200,000 jobs would be lost in the UK.

Casey says: "It is unwise to think that better pensions can be had without a cost. Policymakers should be explicit about this cost. They should also consider whether arrangements other than personal accounts might do a better job."

However, the DWP is questioning some of the terminology and methodology used for the research.

A spokesman for the DWP said: "Reports like this distort the debate. Automatic enrolment and the introduction of a new low-cost pension scheme will help millions of people to save for later life."