Profit warning over pension plans

GOVERNMENT plans to make employers contribute towards staff pensions see profits of smaller travel businesses slashed.

Proposals unveiled in a white paper this week would see companies contribute 3% of staff earnings between £5,000 and £33,000 a year.

Financial adviser Adrian Ware of Cavendish Ware, whose clients include members of the Association of Independent Tour Operators, said: “It is likely to add 0.9% to the labour costs of companies with fewer than 50 employees.”

Labour costs are typically about half of the total operating costs of such companies, he said, and ABTA has estimated the average profit margin of agency members at just 1.1%.

Ware said: “The danger will be that this will drive employers to cut jobs because margins are tight.”

The Confederation of British Industry has already called on the Government to help small firms.

The scheme will be phased in, with companies paying 1% from 2012 and 3% from 2014. Staff will pay 4% of their earnings, but with a tax credit making their contribution worth 5%.

Ware said: “The key message is: don’t panic. Small companies have time to plan, but need to do so.”

He added: “Many smaller, specialist travel companies do not provide pensions and it’s not a highly paid industry. It’s exactly the end of the market this legislation aims to protect.”

Johnson Stevens Travel general manager Peter Cansick described the recommendations as “another burden” although his company has a staff pension scheme. “It’s an extra cost at a time when margins are shrinking. Some organisations may cut staff.”

But Transport Salaried Staff’s Association travel negotiator Rick Justham said bosses had a duty to contribute. “Employers should be able to afford both pensions and pay increases, he said.

The proposals are up for consultation until September and draft legislation is expected next year. They would see the state pension age rise to 68, but only for people under 47.