A report by the chairman of the Pensions Commission and former Director-General of the CBI, Adair Turner says that the pensions problem is becoming so serious that taxes will have to be raised to pay for better provision while people will have to be encouraged to save more or workers persuaded to work on past their retirement ages.
At the heart of Mr Turner’s report is the shocking news that we should be saving £57 billion more a year then we currently are towards retirement funds. This would close the gap with the rest of Europe.
The pensions issue is fast becoming a key issue in Blair’s bid for a further term in office. In reaction to the Turner report Blair dismissed the findings as ‘just an initial analysis.’ The final report will not be published until after the election.
Blair looks to be angling at encouraging employers and workers to keep going beyond current retirement ages. The Prime Minister said that he wanted to change the ‘culture that can write people off at 65 if not 60 or 55.’
This may mean that employers will be prevented from forcing workers to retire at age 65 or more likely employees will be given the opportunity to appeal against mandatory retirement.
Raising taxes to pay for pensions and forcing people to save are less appealing options, particularly for a party who is trying to win over the voters.
In reaction to the report, John Cridland, CBI Deputy Director-General, said:
“This appears to be a spot-on analysis. The report shatters the illusion that there is a single magic solution to the pensions crisis. Compulsion would be a complete blind alley.
“The report makes clear that the emerging pensions crisis is most serious for low paid employees. Unless we act, these will be the poor pensioners of 2030. Preventing this will require a mix of self-help, employer-help and government-help.”
Turner has recommended a varied approach, rather than focusing on one particular option.
The British Chambers of Commerce (BCC) says the solution lies in the phasing out of means testing and the introduction of a flat rate state pension. It also says greater incentives should be offered to small businesses to contribute to employees’ savings.
The CBI and BCC say the government should reject calls for further compulsion. The CBI have predicted that such a move could cost businesses up to £22 billion a year. It says firms would see it as a ‘tax on jobs’ while employees might resent being forced to invest in the stock market.
“Compulsion would present the government with a hostage to fortune. If an individual’s fund failed to deliver after compulsion, they might seek compensation from the government who had made them enter a scheme in the first place,” warns Digby-Jones, CBI Director-General.
The CBI suggests raising the state pension by 32%. This would match the level of the pensions’ credit, giving a rise from about £80 to £105 per week in today’s money. This, they say would eliminate pensions means testing and encourage more people on low incomes to save. They suggest this could be partly funded by raising the state pension age to 70 between 2020 and 2030.
Are you a future retiree of 2020-2030? Would you be prepared to work until 70? Is raising the state pension age the solution? HRZone invites you to share your views. Simply post your comments in the box below.
One Response
Compulsary Pension Contributions
We already have compulsary pension contribution i.e. NI payments. The simplest solution would be to increase NI contributions to a level which would ensure that there is a decent level of State pension, without means testing (which many people find demeaning).
To force people into contributing to equity based schemes is likely to be as unpopular as raising NI contributions and will not avoid the problems of equity based schemes.
Given the recent problems caused by low equity prices, pension mis-selling and pension funds’ problems, surely the best way of protecting the majority of people in society is for the State to take more control.
There is an increasing number of self-employed who do not have the advantages of an employer’s pension contribution. Even those employed have different levels of contribution dependant unpon their employer’s ability to pay. Small to medium sized businesses employ the majority of people and are the least able to afford occcupational pension schemes.
Only those few in final salary schemes are relatively safe but only if they can work to retirement age. Even larger companies are strugggling to maintain their pension funds.
It makes sense to ensure that we all have access to a reasonable income when we retire.
We all become old and none of us know whether we will be fit; or be able; or allowed to work to retirement age. It is ridiculous to talk of working to age 70 when people over age 50 find it difficult to find employment because of age discrimination.