CBI recommends pension reform
Link: CBI recommends pension reform
Employers’ organisation, the CBI, has suggested that the second state pension (S2P) should be reformed in order to increase the pension available to lower-paid workers.
The CBI estimates that reform could increase the retirement income of someone earning £20,000 a year by up to £2,000 a year, by using savings on administration costs to increase returns. It proposes that S2P should act as a savings top-up linked to earnings, to supplement the basic state pension. Administration costs, which can account for 30% of private pension funds for low earners, would be reduced substantially by pooling individuals’ contributions.
The CBI also suggests a state-run scheme for those without access to an occupational pension and believes that workers may need to be more flexible about when they take their pension, rather than retiring at 60 or 65 as people do now.
The CBI’s proposal will be put to the Pensions Commission, which will publish a report on the UK’s pension problems, in the autumn. In 2004, the commission said that over 12 million people are not saving enough for their retirement.
S2P replaced the State Earnings Related Pension Scheme (Serps) in 2002, but it is a complex system, which some experts argue should be abandoned, rather than reformed as the CBI is suggesting.
The National Association of Pension Funds has proposed terminating S2P in order to create a universal state pension. However, Pensions Commission chairman, Adair Turner, has expressed reservations that the best way to deal with the pension’s crisis is to abolish S2P.
