Pensions 'should be compulsory'

Millions of workers will face a pensions shortfall

The only way to solve the UK's pensions crisis is to impose compulsory pensions on employers and workers, a union body has warned.

The Trades Union Congress (TUC) believes that it should be mandatory for employers to contribute to a worker's retirement and, preferably, a requirement to double their employee's payments.

We need a partnership between employers, the state and workers... to ensure that millions do not spend their hard-earned retirement in poverty

John Monks, TUC

In addition, membership of the occupational scheme should be compulsory for workers, and a condition of employment.

The proposals are contained in a report published on Monday, and follow a warning by Amicus, a leading union, that workers are prepared to strike over the closure of generous final salary pension schemes.

'Herd mentality'

The TUC's report, called "Prospects for Pensions", calls for a national debate about the crisis, and in particular final salary pensions.

Pension fund returns, linked to stock market performance, have fallen steeply over the last two years in line with plummeting share prices.

The lower than expected returns have led many employers to suspend lucrative "final salary" pension schemes - which offer employees a guaranteed proportion of their final salary on retirement.

According to the TUC's report, over the past 10 years the number of people in final salary schemes - generally viewed as the most generous type of pension - has dropped by nearly two million to 3.8 million.

While there has been a gradual erosion of these schemes, new accounting requirements, such as FRS17, which requires a company to be more transparent about pension liabilities, have accelerated the closures.

The research also identifies the concern that few people are saving for their retirement.

More than half of the UK's workforce are not in a occupational scheme, says the report.

Key proposals

The union body believes that there should be a national pensions debate, and it has identified a number of issues and proposals:

• All workers should have access to a quality pension scheme.

  

  John Monks: "Partnership" needed to solve crisis
  

• The present problems are a result of a retreat from pension provision by the state and employers.

• Final salary schemes are fast disappearing from the pensions landscape. In large measure this is because employers' contribution holidays have now come to an end.

• More remains to be done by the government to address the weaknesses in the pensions system as can be seen from the three reviews (Pickering, Sandler and the Inland Revenue) that are currently in progress.

• In the sprit of shared responsibility, consideration must be given to introducing compulsory employer contributions to occupational pensions. As a quid pro quo, employers should be enabled to make pension scheme membership a condition of employment for employees.

• Workers on modest incomes may find it hard to maintain their current commitments and save for a pension. Consideration should be given to fiscal incentives, including a pension tax credit, to make saving more affordable for lower paid employees.

High-profile conference

On Thursday, influential figures will meet at the TUC's office in central London to discuss the current pensions crisis.

Speakers include a number of government ministers, and Alan Pickering, who is currently working on a review of the pensions market due to be published shortly.

John Monks, general secretary of the TUC, who will also speak at the event, said that the solution to tackling the current crisis was through "partnership".

"Individuals can never save enough to fund a secure retirement," he said.

"We need a partnership between employers, the state and workers, backed up by legislation to ensure that millions do not spend their hard-earned retirement in poverty."

What do you think of the issues raised in this story? Send us your comments using the form below.

They are rarely prepared to make the necessary sacrifices in order to save for retirement

Richard C, UK

Having previously worked as a financial advisor, I have experienced varying attitudes from Joe Public. Firstly, we live in a society where people just live for today. They are rarely prepared to make the necessary sacrifices in order to save for retirement. In the past people saved on very low incomes. They were better at making astute choices. Nowadays, people want to spend large amounts of money eating out, new cars, etc and then say they can't afford anything. They can but don't want to.
Richard C, UK

Pensions are an integral part of everyone's working life, however the recent crisis of confidence regarding the ethical standards of 'industry leaders', past collapse of pension funds through deliberate market manipulation for personal benefit, have, I believe, left behind a rather cynical general public.
Philip Keable, UK

If occupational pensions are to become a requirement for all then this must be done with a more wide-ranging review of the terms of these schemes so that a guaranteed right to transfer them between employers exists. Currently many occupational schemes seriously restrict employees' options when leaving the company and with the change in the average working life pattern the system must change to reflect this.
Andy, UK

Never an hour goes by on TV than we are being urged to borrow more money for the things we want now!

Marion Greenhalgh, England

Nine out of ten times the main line of a pensions report will hinge on misappropriation of funds. People who are not fat cats are very conscious that their hard earned cash might not be there when they need it. And then we have the ever-increasing barrage of a loan society. Never an hour goes by on TV than we are being urged to borrow more money for the things we want now! With these mixed messages no wonder the present middle market workforce is forgetting about provision for tomorrow.
Marion Greenhalgh, England

Analysis shows that the stock market has grown by an average of around 12.8% a year over the course of the last century - that includes big dips like the Great Depression. By contrast, pension schemes typically offer far poorer returns and often force customers to buy even poorer value annuities. While I agree that people should be compelled to provide for their own futures, I can't see the logic in forcing everyone to invest in schemes which offer worse value than a long term index tracker!
Rick, UK

It is difficult to get people interested when they are young and have pressure on finances to provide themselves and their family with housing yet this is the time when it is vital to start saving so the money has time to grow. The Government has wrecked the pensions industry by removing part of the tax advantages previously available on company dividends to pension schemes and by changing the regulations surrounding accounting rules. All this happened at a time when the stock markets have declined and pension providers have started to wake up to the fact that people living longer cost them more money!
Frank, UK

There needs to be a clear reason and incentive for people to save

Arthur Kendall, UK

The pensions problem cannot be solved simply by making contributions compulsory. There needs to be a clear reason and incentive for people to save, both in lifestyle and financial terms. This means a large dose of education and simplicity. Once people can see why they need to and how they can help their retirement lifestyle through saving, they are much more likely to do so than through compulsion.
Arthur Kendall, UK

As long as the pension rules stay the way that they are then a compulsory pension scheme is just another form of tax. The Government should look at simplifying the pension and savings rules rather than adding more layers of complexity.
Mick Mills, UK

Very few people stay with the same employer for a long period of time, therefore they stand to lose a small fortune in administration charges and lost income by constantly schemes. The decision about what type of pension scheme an employee should join should be left to the employee him/herself. Mandatory schemes are an abuse of those people's freedom.
Darryl Catchpole, UK

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