UK voluntary schemes in 'last chance saloon'

UNITED KINGDOM – The current voluntary approach to pensions in Britain is in the ‘last chance saloon’, a taskforce has warned.

In a report out today, the Employer Task Force, headed by Sir Peter Davis, the former boss of supermarket group Sainsbury, warned “drastic solutions” were needed if Britain wanted to maintain its current voluntary system.

Although stopping short of forcing employers and workers to pay into occupational schemes, Sir Peter said employers needed to improve the current framework “in a way that makes sense for business.”

He added: “Unless we can reverse the current decline in adequate employer-led pension provision and deliver increased savings from both employers and employees through the current framework, the government may be forced to look at more drastic solutions.”

In October, the Pension Commission said the UK faces a £57bn pension black hole, with young people not saving enough for retirement.

Business groups such as the CBI fear companies could be forced to pay billions of pounds if they are obliged to pay into workers’ pension schemes.

The employer-led task force, which was set in 2003 to take a closer look at the desperate state of the UK pensions industry, has presented its findings to Alan Johnson, the secretary of state for work and pensions.

The task force said employers should help workers achieve combined contribution levels of between 10-15% of salaries, with employers ideally providing two-thirds of this. It further called for workers to take responsibility of their own pension pots and contribute to their pension schemes.

Business advisory group PKF said the only solution to solve the pensions shortfall was the introduction of compulsion in the system.

PKF financial planning consultant John Hutton-Attenborough told the British media: “It’s not just young adults who are not saving, it is the middle age, middle earners as well. There is complete apathy to pensions because people have become confused by them and do not trust them.”

Hutton-Attenborough called for the government to introduce compulsion by initially putting 1% of workers’ National Insurance payments into a pension pot.

Christine Farnish, chief executive of the National Association of Pension Funds (NAPF) said the report added to the “growing consensus around the need for simplification of Britain’s arcane pension system, and for better incentives for employers to offer – or to continue to offer – workplace pensions.

Richard Saunders chief executive of the Investment Management Association (IMA) and member of the task force's advisory group, welcomed the report’s emphasis on “using the workplace to foster information and advice and to encourage more flexible and accessible long-term savings products combining the best features of ISAs and pensions.”