Compulsory saving is 'pension solution', say TUC

Compulsory savings must be part of any solution to the growing pensions crisis according to the TUC.

In a submission to the Pensions Commission, chaired by Adair Turner, the TUC has said that people need to save 15% of their income to provide a decent pension and in a new compulsory system employers should provide 10% and employees 5%.

The TUC called for a new compulsory savings regime to be run by a body modelled on the Low Pay Commission and involving unions, employer representatives and independent experts.

Savings generated should provide a pension through a mix of provision. The TUC also called for a "revitalised state second pension", one that does not involve any degree of risk, to provide the main part of any pension for the low paid.

In addition, employees would contribute to defined benefit (salary related) schemes where employers provide them; defined contribution (money purchase) schemes; and hybrid schemes where the risk is shared between employer and employee.

The TUC says the state should also play its part with the basic state pension increased in line with earnings, and set at a level above the poverty threshold so that millions no longer face a future of means testing when they retire.

There also should be special help for women, and a new pensions settlement must be based on every woman acquiring their own pension rights.

TUC General Secretary Brendan Barber said: "When we first proposed compulsion, most commentators said that we had little hope of making headway. Yet the tide is turning in our direction, and the Turner Commission’s first report made clear that it would be hard to solve the pensions problem without compulsion.

"Companies that provide good pensions are asking why they should be undercut by those who don’t. And those who oppose compulsion have failed to find any convincing alternative other than ‘work till you drop’ higher retirement ages to make up for the obvious failure of voluntarism."

The cost of providing an adequate a second-tier pension would be of the order of 15% of pensionable earnings over £6,000. This would apply to all employees with no upper limit on earnings. The 15% should be split on a 2:1 basis between employer and employee and phased in over time.

The TUC want to see the level of adequacy determined by an independent body on the lines of the Low Pay Commission in a way similar to the setting the National Minimum Wage.

(SP/MB)