Pensions clash between CBI and Institute of Directors

BRITAIN'S TWO largest lobby groups for business have clashed over the issue of whether there should be a compulsory retirement age. It happened as industry groups submitted their proposals to the Pensions Commission, the body set up by the Government to help solve the country's pensions crisis.

The Institute of Directors (IoD) said the UK's looming pensions problems could be stalled by ending forced retirement at a certain age. Three- quarters of IoD members said they opposed staff being forcibly pensioned- off. This goes against the long-standing view of the CBI, which believes that company retirement ages give employers and staff certainty over their pension arrangements and end any disputes over whether someone is fit to work or not.

Business and pensions industry groups have been responding to a report by Adair Turner, who was asked by the Government to review the UK's pension regime and assess whether further compulsory saving is necessary.

In his initial report, which was published last October, Mr Turner warned that the country faced tough choices between raising taxes, savings or retirement ages if it wanted to stop pensioners becoming poorer relative to the rest of society in the future. Mr Turner said that unless the current balance of state benefits and voluntary saving changed, millions would face a bleak retirement.

However, little in the way of real consensus is emerging on what these changes should be. The CBI, for example, is against the idea of establishing a flat-rate "citizens' pension" which would give a higher state pension to everyone.

This idea has been championed by the National Association of Pension Funds (NAPF), which believes that it would eradicate the need for a complex, double layer of state benefits.

Christine Farnish, of the NAPF, said in the association's response to Mr Turner's report: "If we had a decent universal state pension, the debate over further compulsion would fall away. Incentives to save could be streamlined and there could be significant deregulation of private retirement savings, which would bring down costs."

The concept of a citizens' pension has also garnered favour with politicians, but Sir Digby Jones, the director general of the CBI, said the UK "cannot afford a flat rate pension for all". The CBI believes that the basic state pension does need to be increased, but on a gradual basis and only to the level that would eliminate means testing.

The Association of British Insurers (ABI) also wants to establish a "virtuous circle" of better incentives for employers and individuals to contribute to pensions, as well as financial advice that is more readily available. The ABI told Mr Turner's team that compulsory pension saving should be considered only as a last resort.

Trade unions have said the voluntary pension system has failed and that people must be forced to save more to boost pension provision.

"People need to save 15 per cent of their income to provide a decent pension and in a new compulsory system, employers should provide 10 per cent and employees 5 per cent," the TUC said in its submission.

The Commission will now evaluate the responses it has received and will produce a second report in the autumn containing recommendations to the Government on how to improve the system.