Action needed now if voluntary pensions model is to survive
Government, employers and employees must take action now if the traditional voluntary pensions model is to survive.
That is the conclusion of the Government commissioned Employer Task Force on Pensions as it delivers its report today.
The report is the latest in a series of investigations into the pensions crisis in the UK – all of which have concluded that we are not saving enough for our retirement.
“Whilst employees must take some responsibility for their own pension provision, employers can and should play a major role in helping people save for their retirement,” said Sir Peter Davis, chairman of the pensions task force.
But he concluded that voluntary pensions do have a future, saying: “We at the Employer Task Force want the current voluntary approach to work and believe employers have an opportunity to build on and improve the current framework in a way that makes sense for business.
“But make no mistake, we are in a ‘last chance saloon’ for voluntarism and unless we can reverse the current decline in adequate employer-led pension provision and deliver increased savings from both employers and employees through the voluntary framework, the Government may be forced to look at more drastic solutions.”
“We are calling on employers, employees and the Government to work together to ensure we address the challenges faced. We need a stable and well understood framework, increased demand from employees, clarity on who needs to save, and, for smaller businesses, a targeted incentive,” concluded Sir Peter.
The report suggests that employers should accept they have a responsibility to fund pensions and move to provide around two thirds of the recommended contribution level of 10 to 15 per cent of an employee’s salary. At the same time employees are called upon to take responsibility for their pensions and contribute to pensions schemes.
The Government is urged to provide a “stable, long term framework” which encompasses clear guidance on savings and to achieve a “broad policy consensus” on the way ahead. In addition, it is called upon to maintain the current levels of financial support for pension schemes and target small businesses with incentives to encourage employer contributions.
Responding to the report Work and Pensions Secretary Alan Johnson said that it makes and “important contribution” to the debate on the UK’s pensions provision – and was particularly pleased that they have identified some practical recommendations.
He said: “We intend to develop this further by accepting the recommendation that government provide a single web-based source of all Good Practice information for employers. We also intend to look at ways of getting targeted information to small business where employer pension provision is a particular issue.”
“The Task Force has endorsed the Government’s view that employers have a critical role to play in helping employees save for their retirement. The report contains an important message for employers – that they can and should do more. I would urge employers to look carefully at the recommendations in this report and to do everything they can to enable their employees save for retirement.
“Some of the recommendations are for government and we will carefully consider these alongside the work of the Pensions Commission. But, where we can make rapid progress to help employers we will – indeed the Financial Secretary to the Treasury has already announced forthcoming changes to the financial promotion regime [under the Financial Services and MarketsAct] that have been welcomed by the Task Force.”
Mervyn Kohler, the head of public affairs at Help the Aged, said that radical reform of the pensions system is needed.
He said: “The tri-partite responsibility for pension provision which successfully drove the occupational pension industry in the mid-twentieth century has disintegrated. The terms on which the labour market, the capital markets and the political consensus fuelled that drive have all changed, and the pensions priesthood is casting around trying to fit the pieces back together again.
“Adair Turner has warned that voluntarism is not working. Alan Johnson has hinted that compulsion may be necessary. Now Sir Peter Davies and his employers’ taskforce on pensions is warning that the Government will be forced to consider more drastic solutions if the voluntary approach fails to deliver adequate pensions for the older population.”
Mr Kohler suggested that compulsion may be necessary, adding: “Sir Peter has looked at some bandages for the system, but clearly favours a more radical reform. Help the Aged agrees.”
