Blair plans compulsory pensions

The Government is to consider forcing people to take out pensions to head off a growing crisis in which millions of workers could be left without an adequate retirement income.

Tony Blair is worried that the Government could face a backlash if it fails to act, following the decision of several leading companies to scrap final salary schemes. The Prime Minister has been warned that "focus group" interviews show pensions rising up the list of concerns.

Compulsory pensions for people not in company or personal schemes were rejected by the Government in 1998 when they were proposed by Frank Field, the then Minister for Welfare Reform. But government sources revealed yesterday that the looming crisis had put the issue back on the agenda. The move would be controversial, because it would be seen as a further tax rise on top of the 1 per cent increase in national insurance contributions announced in the Budget. Some estimates suggest workers need to contribute up to 5 per cent of their income from the age of 25 to ensure an adequate pension.

Mr Blair, Gordon Brown, the Chancellor, and Alistair Darling, the Secretary for Work and Pensions, will consider compulsion when they study the findings of three government-ordered inquiries due to report in July.

One minister said: "The ground is moving on compulsion. The pensions world has changed dramatically since we last looked at it. We may have to bite the bullet." A Whitehall source added: "Pensions is an issue we are concerned about. The current strategy was devised for a different climate."

There are fears that the cost of the Government's top-ups for pensioners on low incomes will become unsustainable if today's workers do not save more for their retirement. It is estimated that seven out of 10 pensioners will qualify for means-tested benefits by 2050.

Supporters of compulsion say it exists in the system through national insurance and the state second pension, which has replaced the state earnings-related scheme.

Concerns about the looming crisis were heightened when Mr Brown failed to address the issue in last month's Budget. But according to Labour sources, at a meeting of the party's ruling National Executive Committee (NEC) on Tuesday, Mr Brown expressed support for trade union campaigns to safeguard occupational schemes.

Mr Brown was told by NEC members that pensions were now a front-line issue which concerned the public. One member quoted Mr Brown as saying the inquiries would "consider all options, including compulsory contributions from employers and employees".

A Labour source said: "In 18 months time, final salary schemes are going to be pretty rare. Compulsion is really the only way unless you want to tell the voters they will have a rough old age. If voters feel cheated out of a promise, they will blame the Government." At present, 350,000 employers without company schemes must administer stakeholder pensions for their workers, but are not forced to contribute to them.

However, ministers believe Mr Blair and Mr Brown will stop short of compelling companies to run schemes, a move which would be opposed by businesses already angry about the higher national insurance payments which take effect next April.

Sir Howard Davies, the head of the Financial Services Authority, favours "some form of pension compulsion". Some pension fund heads say the Government should give the stakeholder schemes for low and middle earners more time to work. But a survey of 148 MPs found 60 per cent in favour of forcing people to contribute.