'Compulsion lite' and the great pensions debate

Could we be forced to save? Esther Shaw looks at possible solutions to a £57bn crisis
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The Independent Online

It's rare that rival MPs get together in the same room and use words like "consensus", "dialogue" and "agree- ment". But then pensions have become bigger than party politics.

At a series of seminars last week hosted by the Pensions Commission, politicians of different hues met executives from the financial services industry in an attempt to thrash out the bare bones of a solution to the long-term savings crisis.

The meeting formed a key part of a consultation held by the commission, chaired by Adair Turner, on reforms to the pensions system to encourage people to save for retirement.

With the recommendations not due to be published until November, Mr Turner is eager to hear viewpoints from all sides, and especially those of the new Work and Pensions Secretary, David Blunkett.

Addressing a conference last Tuesday, Mr Blunkett urged all present - businessmen, consumer bodies, academics, trade unions and pensioner campaign groups, as well as politicians - to build a consensus that is "more than just all of us in this room - that which actually draws in the population as a whole".

But, as he acknowledged, this will be no easy feat. "People want to live longer, live better, retire earlier - and want someone else to pay for it."

Unfortunately, there is the small matter of a £57bn shortfall between what Britons are putting away now and the sum needed to secure a comfortable retirement in the future.

The origins of the problem are well documented: we are ignoring tax incentives and failing to store up private pensions; the basic state pension is complex and hardly generous; employers are slashing contributions and transferring responsibility for pensions to their staff.

Despite Mr Blunkett's good intentions, and universal agreement on the need for unity in dealing with the problem, other politicians were still critical. Sir Malcolm Rifkind, shadow Pensions Secretary, accused the Government of "leisurely pro- gress" in dealing with the crisis. And David Laws, the Liberal Democrats' pensions spokesman, rebuked Labour for its reliance on complex means-testing and a lack of incentives to save.

The National Association of Pension Funds (NAPF) also issued a stark warning at the conference - that all "final salary" pension schemes in the private sector could close within five years.

While three quarters of these occupational plans (which guarantee to pay out a proportion of salary at retirement) are already closed to new staff, the NAPF said existing members could lose out too.

In most cases, staff are now offered only less favourable "money purchase" schemes, which are dependent on stock market performance.

While it was expected that Mr Blunkett would shed some light on which way the Government was leaning, he kept his cards close to his chest. He did, however, drop a broad hint, saying he was "really interested" in proposals for "auto enrolment".

This would mean employees having to opt out of occupational schemes when joining a company - instead of opting in, as they do at present. Ideally, the change would persuade the four million people who are currently in a company plan but not making a contribution to do so. This "compulsion-lite" is backed by the Association of British Insurers (ABI).

Others want a tougher savings regime. The only way to ensure everyone has a decent income in retirement is for both employers and employees to be compelled to pay a target level of up to 15 per cent of pay, says the TUC.

Consumer body Which? also backs a form of compulsion, believing it is the fairest way of delivering a decent retirement income.

Last week, Which? joined the TUC and pensioner charities Help the Aged and Age Concern to announce a new campaign group. The People's Pension Coalition backs a form of compulsion, opposes set retirement ages and wants a fairer deal for women, who are penalised under the current system. As entitlement to the state pension is based on national insurance (NI) contributions, women who take time out to look after children don't have the chance to build up a decent retirement income.

While there is wide-ranging agreement on the need to improve conditions for women, the co- alition will inevitably run into opposition.

The CBI, for example, says compulsion would be devastating to smaller employers and lower-income earners who cannot afford to pay the pension contributions.

The NAPF also opposes compulsion, saying it would not be necessary to force people to save if reforms were effective.

It proposes replacing the existing state pension with a single, universal, flat-rate Citizen's Pension. This would be set at a higher level than the basic state benefit and paid on the basis of citizenship, not NI contributions.

But despite the differences in opinion, clear signs are at least emerging that the various bodies are prepared to work together - progress indeed from even one year ago.

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