Pension Governance

With the advent of compulsory pensions for employees it is somewhat ironic that the FSA yesterday confirmed that the projection rates used by pension companies to give investors an idea of what their pension will be worth when they retire must be significantly reduced. So, we are forcing people to invest in products that are dwindling in performance in the vague hope that this will somehow all work out all right by the time we actually retire. In the meantime, the burden on small businesses of the employer’s contribution makes it yet harder for the entrepreneur to create the new employment that the country so badly needs.

The burden on tax payers of an ageing population is undoubtedly an issue that needs to be addressed. However, we seem to be looking at it in isolation and not considering the wider implications today of a policy for tomorrow.

Tax Governance

The recession has taken away the concept of job security for most people. The risk therefore of starting up on your own, by comparison, is substantially reduced. With household names like Comet going under and others cutting staff costs dramatically, we are relying heavily on new small businesses to play a major part in pulling us back into growth.

So what are we doing to encourage this? The government has recently been promoting employee ownership. John Lewis is a shining example of the success of this concept. The proposal is to create an off-the-shelf model for setting up an employee owned business, to publicise it through the Institute for Employee Ownership and to create an implementation group to oversee it and provided feedback to government.

This is all very positive. However, we seem to have ignored the main reason why businesses have not generally embraced employee ownership in the past – the tax system is too complex and time-consuming and therefore acts as a deterrent. It is difficult to see how this initiative can be a success without simplifying the process.

Further confusion has been created by the simultaneous promotion by the Department for Business, Innovation and Skills of the new employee owner contract. Under this different initiative, the employee gives up some of their employment rights in return for shares. There is therefore the risk that employees will perceive that share ownership always comes at the cost of employment rights.

Raising awareness of employee ownership is undoubtedly a positive step. For it to have any real impact, the tax and procedural barriers need to be removed.