Pension changes could hamper employment flexibility

Reforms to the pension system, planned for 2012, run the risk of adversely affecting the flexibility of the UK’s labour market, it has been argued.

The British Chambers of Commerce (BCC) has issued a report saying that the possible impact of the changes on temporary workers has not been thought through.

As from 2012, every worker will be enrolled automatically into a qualifying pension scheme. However, they will be able to opt out once they have been enrolled.

The BCC report pointed out that temporary workers are twice as likely to opt out as permanent employees.

The likely administrative costs of handling the opt-out each time a temporary worker starts a new assignment would represent a real burden, the BCC continued.

So much so that there would be a danger of pricing temporary workers out of the market since agencies tend to hand on extra costs to their clients.

Instead, the BCC has proposed that agency workers should only have to opt out once every three years rather than go through the process of continually opting out.

This would cut significantly the overall administrative burden on agencies and save employers from facing extra costs.

The BCC said that 25 per cent of all UK businesses use agency workers, the proportion rising to over 1 in 2 for the largest firms.

David Frost, the BCC’s director general, commented: “It’s logical to suggest that temporary workers should not have to opt-out after each assignment they take on. The administrative costs of doing this are so high that they risk pricing temporary workers out of the market.

“The government must stop thinking of these reforms in a bubble. Put in the context of the other changes that will be going on around 2012 – pension reforms, the implementation of the temporary agency workers directive and the increase in National Insurance Contributions – this could have a devastating impact on our essential flexible labour market.”