The employer Task Force on Pensions (ETF), headed by the former chief executive of J Sainsbury, Sir Peter Davis, called on UK businesses to make one last push towards finding a voluntary approach to the pensions crisis yesterday, warning that the country is in "the last chance saloon for voluntarism".
Publishing its maiden report, the ETF, an independent body which was set up by the Government last year, said the UK could still avoid a shift towards compulsory employer and employee pension contributions, but was running out of time.
Drawing on the conclusions of the Pension Commission's report, published two months ago, Sir Peter urged the main political parties to come to a consensus view, and move the pensions debate forward.
Sir Peter said: "What we're saying is that there is an opportunity, that's still there according to Adair Turner [the head of the Pension Commission], to get this fixed. Let's take it out of party politics, raise the level of debate, clear away some of the obstacles and make it much simpler to understand - and not make short-term political capital out of it. Is [voluntarism] worth one last push? Our view is that it is."
Laying out a series of recommendations to government and employers, the ETF called for "a removal of the uncertainties that are acting as barriers to increased employer pension provision", such as the confusion created by means-testing, which has provided a disincentive for some people to save.
It added that the introduction of new tax incentives to encourage smaller businesses to contribute to their employees' pensions should be considered seriously by the Government, highlighting that the pensions situation is worst among those who work for companies with fewer than 100 staff.
"If you take companies with up to 100 people, around 50 per cent of them do not contribute to their pension schemes for employees," Sir Peter said. "But if you look at companies with between 100 and 250 employees, only 10 per cent of employers don't make a contribution."
Overall, the report recommended that employers and employees should aim to be putting a total of 15 per cent of employees' salaries into a pension each month, of which employers would contribute about two-thirds.
Other recommendations in the 70-page report included a call to restructure the annuity market, giving people greater flexibility once they reach retirement. Sir Peter said that annuities were originally designed as 10 to 15-year products, but in more recent times have had to last for between 20 and 30 years.
Pensioners with modest savings may be better served by a product which allowed them easier access to their pension pot in early retirement, with annuity purchase following in later life, he said.
"Assuming that the trend towards DC [defined contribution] schemes continues, there will be many more people coming up to retirement with pension pots that are greater than [the current average of] £30,000," he said. "We think the Government should be looking at alternatives to annuities, and perhaps introducing a two-stage process, which would include an interim product for early retirement."
Commenting on the report, Alan Johnson, the Secretary of State for Work and Pensions, said: "The report contains an important message for employers - that they can and should do more. I would urge employers to look carefully at the recommendations in this report and to do everything they can to enable their employees to save for retirement."
Brendan Barber, the TUC's general secretary, said that while he welcomed the report, he believed it was already too late for voluntarism. "The long-term value of this report is that it will provide a firm base on which a compulsory system can be built," he said. "But we cannot rely on the voluntary efforts of employers to provide pensions any longer. Compulsion must be part of any long-term solution to the growing pensions crisis."
Separately, the Government yesterday named David Norgrove, a former director of Marks & Spencer, as chairman of the new Pensions Regulator, which is being set up to monitor company pension schemes.
Davis Report recommendations
- Recognise they have a responsibility to help fund the pensions of their employees.
- Aim, over time, to achieve combined contribution levels of about 10 to 15 per cent, ideally shared on a 2:1 basis between employer and employee.
- Recognise the importance of maintaining fairness in the shift from defined benefit to defined contribution schemes.
The Government should:
- Provide a stable, long-term framework for UK pensions with clear guidance on who should be saving, and achieve a broad consensus on the future.
- Introduce a new targeted financial incentive to encourage employer contributions among smaller businesses.
- Work with the financial services industry to review the market for annuities which provide an income for life.