By Paul Lewis
BBC Radio 4's Money Box
The Association of British Insurers has called on the government to give back to employers some of the National Insurance they pay in order to boost membership of occupational pensions.
The Pensions Commission report confirmed many people's fears
The ABI has made the suggestion in response to a major report published on Tuesday, 12 October, which showed that 12 million people are not saving enough for a pension.
ABI Head of Pension Policy Joanne Segars told BBC Radio 4's Money Box that the importance of employers contributing to their pension scheme cannot be over-estimated, and said that even putting in 5% of pay can boost membership five-fold.
The ABI has proposed a tax rebate whereby if the employer puts a certain amount of money into staff pensions, and gets a certain amount of the workforce to join, then they would get back some of the National Insurance they had paid.
It is a view supported by the National Association of Pension Funds (NAPF). Its Chief Executive Christine Farnish told the programme:
"We need ways that employers can be [given incentives] to put more into the pension pot.
"We are talking about re-jigging the entire system; putting the money that is currently spent by the state on, for example, 40% tax relief to high-earners and National Insurance rebates, and saying: can we spend the same amount of money in a more effective way?"
Earlier, the chairman of the commission which had produced the shock report, Adair Turner, told the programme that if such changes did not work he would consider recommending that we should all be forced to pay into a pension scheme when he published his second report in a year's time:
BBC RADIO 4'S MONEY BOX
The programme was broadcast on Saturday, 16 October and was repeated on Sunday, 17 October at 2102 BST.
"The thing we have to look at is whether the barriers to the present, voluntary system [can be overcome]. Can codes of conduct and automatic enrolment in pension schemes make employers provide schemes and encourage people to join them?
"At the end of the day we will have to make a judgement as to whether making the voluntary system better can have enough mileage, versus making it compulsory."
Work for longer
Mr Turner warned that working longer had to form part of the solution:
"Average retirement ages should increase. One of the problems is that we have had increasing life expectancy and up to four years ago the average age of retirement was coming down.
"As life expectancy goes up further, at least some of that has to go into more years of work. It cannot all go into more years of retirement. The figures do not add up."
But he said he might not recommend a change in the state pension age, something already ruled out by ministers:
"I think we will stick to features of the state pension system which are required to make the private system work. I am not at all sure that requires us to comment on the state pension itself."
One of the things he will comment on though is the complexity of the state scheme. He told Money Box:
"We came to the conclusion that this is the most complex state pension system anywhere in the world.
That is a problem, because when people decide how much to save, they need to know how much they are going to get from the state, and it is difficult for people to understand that at the moment."
Major simplification is on the government's agenda too.
Speaking in the House of Commons hours after Adair Turner's report was published, the Secretary of State for Work and Pensions Alan Johnson was asked by Liberal Democrat MP Steve Webb if he was "rather more positive about a pension based on residence rather than on contributions".
Mr Johnson replied: "I have an absolutely open mind, veering towards being very positive about it. That is as much as I can say at the moment... The idea is really interesting and deserves much closer examination."
His comments led many MPs to believe he was announcing a u-turn in government policy, and that interpretation was supported by Richard Wilson from Help the Aged.
He told the programme:
"This is highly significant. For the last seven years we have been told that means-testing is the only fair and sensible way to provide extra money for pensioners.
"Now this about-turn says means-testing has gone too far and we need a better state pension, a fairer state pension. That is a huge change for 11m pensioners."
BBC Radio 4's Money Box was broadcast on Saturday, 16 October, 2004 at 1204 BST.
The programme was repeated on Sunday, 17 October, at 2102 BST.