The news that we are living in a populous ‘fool’s paradise’ with a serious pension shortfall for the 2020-2030 retiree generation is chilling news even for the most relaxed of workers; the message is clear we have three choices pay more tax, save more or work longer; the TUC say the UK faces a stark pensions choice.
The pensions issue has been flung to the forefront of the politicial and social agenda in the last few days with the unveiling of the 227-page epic pension report from the chairman of the Pensions Commission, Adair Turner.
The message is clear. Unless government initiative’s can produce a significant change in people’s behaviour, voluntary systems such as we have now combined with the current state pension will not be enough.
The Trades Union Congress (TUC) has called for compulsory employer and employee pensions contributions as a way of increasing the number of people saving.
Kay Carberry,TUC Assistant General Secretary commented:
“The voluntary approach to pensions saving has had its day. The country faces a stark choice. We either save more now or pay a high price later. For a decent retirement for all either all employees and employers start paying enough into pensions, or everybody will end up paying more tax and working for longer.
“There is a compelling case for phasing in compulsory employer and employee pensions contributions to increase the numbers of people saving.”
This is a move that is strongly opposed by both the Confederation of British Industry (CBI) and the British Chambers of Commerce (BCC).
The CBI say compulsory contributions 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, Director-General of the CBI.
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.
If the retirement age does not go up, state pensions spending or private savings must rise by £57bn a year to meet the shortfall, the commission said.
Turner’s final report is not due to be published until after the next election.