Pension crisis: Radical action needed

By Brendan Barber
TUC General Secretary

Brendan Barber of the TUC

With publication of a key report into the future of UK pensions due on 30 November, the head of the TUC outlines what unions would do to boost wealth in retirement.

Some say that there is no crisis in pensions, yet we firmly believe that the UK is heading for a real pensions crisis if radical action is not taken.

We do not underestimate the scale of the pensions problem and the government clearly recognises it, hence the establishment of the Pensions Commission, headed by Lord Turner.

The commission was set up precisely to look at how the UK should deal with the growing problem of pension provision for future generations, and to make recommendations on whether our pension system should move beyond its current voluntary approach.

We can argue about who is to blame and it's easy to point the finger.

Many employers have taken the easy option and walked away from providing decent workplace pensions, often whilst maintaining good schemes for themselves.

Meanwhile the value of the state pension in real terms continues to decline, whilst means testing is on the increase.

Since the link between earnings and the cost of living and the state pension was axed, pensioners have increasingly struggled to make ends meet

But if we are to really get to grips with pensions, we have to step away from the arguments and look to the long-term for measures that get to the heart of solving the problem.

Not attractive

The options outlined by the Pensions Commission interim report, published last autumn, said that the UK could either do nothing, and accept that in the future pensioners would be poorer; we could pay more tax and increase the amount spent on the state system; we could save more; or we could work longer.

None of these options seem particularly attractive either to the public or to politicians, but the TUC believes the fairest way of securing better pensions for future generations is by ensuring everyone plays their part in saving for retirement - and that means the state, employers and individuals.

A key concern for trade unions has been the promotion of equity - not just between pensioners and the rest of society but also between men and women. To achieve this we would like to see change in a number of key areas.

The state pension is the foundation stone of the pension system in the UK.

Since the link between earnings and the cost of living and the state pension was axed, pensioners have increasingly struggled to make ends meet.

To give the state pension real worth, the TUC would like to see it increase to about £110 per week (a single person currently gets £82.50) and of course, the link with earnings needs restoring.

Gender gap

Women are being let down badly by the current pensions system and, unless major reform takes place, young women just starting out in the world of work will have as little cash in their old age as their great grandmothers did.

The TUC wants a more flexible approach to when workers retire

There are many reasons why women are our biggest pensions losers.

A combination of low pay, part-time work, jobs that don't come with pensions and shorter working lives because of time spent either bringing up children or caring for older relatives means that, compared to men, women are almost always going to be short-changed in their old age.

A move towards a universal state pension would ensure greater equity between men and women and between those people who have had breaks between the various jobs they've held.

A new kind of state pension that wasn't solely based on an individual's National Insurance contributions could make a real difference to the lives of millions of women facing poverty in their old age.

Compel employers

Our next call is for greater compulsion.

We believe the only way to halt the employer retreat from pensions is to have a phased introduction of compulsory contributions.

At the moment, many people are employed in workplaces where no pension is offered, and millions of people in their 20s and 30s risk leaving it too late to start saving for a pension, simply because they currently have other calls on their salary.

We want to make sure people at work build up their own pension with compulsory contributions from employers and employees who can afford it.

In terms of paying for all these changes, we believe that this should happen in part by a long-term increase in tax

The TUC believes that 15% of pay is required to build up a decent pension, that employers should contribute 10% and employees (other than the low paid) 5%.

For the low paid this should build up a guaranteed state second pension, while others will save more through occupational or stakeholder type schemes.

There will need to be a significant period of transition to allow both employers and workers to adjust.

Paying the bill

In terms of paying for all these changes, we believe that this should happen in part by a long-term increase in tax and in part by shifting resources from other areas of expenditure.

In addition, we recommend a more equitable distribution of the £26bn of tax relief on occupational pension contributions, 50% of which currently go to just those high-income earners who already have more than decent pensions.

Another key issue for trade unions is the state pension age.

Some of the debate has focused on whether this should be increased. We reject the 'work-till-you-drop' policies of increasing the pension age to 70.

There are alternative solutions based on a bigger role for the state - increased saving, rather than a higher working age.

We also need to think more imaginatively about providing more choice as to how and when we retire.

Why should retirement be an overnight change from full-time work to full-time leisure?

Some may want to work longer, some might wish to save more and retire earlier, others may prefer a combination of part-time working whilst drawing part of their pension. These are issues that need to be given much more attention.

One final point. We would like to see a permanent pensions commission established, a commission that would include expertise and be representative of stakeholder interests.

The pensions issue is too important to be dealt with by politicians who can only ever have an interest in the short term.

A permanent commission would take pensions above party politics and be part of the solution that would help deliver better, fairer pensions for all.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated.