Finance Choices
Blunkett hints at compulsory retirement savings
People could be forced to save for their retirement, Work and Pensions Secretary David Blunkett has hinted.
Official reports suggest that more than 12 million people are not saving enough for their old age.
Prime Minister Tony Blair has previously warned that there would be "real difficulties" introducing compulsory savings, but Mr Blunkett said merely giving people information "is not enough".
"We have a responsibility to make sure there is sufficient for people to live on," he told BBC One's The Politics Show.
"I think it is a very interesting question as to whether government has a responsibility for actually making people go beyond that. But we certainly have a responsibility to ensure they know the consequences of not doing that."
"Whilst the evidence is that good information, education, awareness is vital...the truth is if four million people who have good occupational pensions to which the employer is contributing are not taking up the option of adding their resources in at this stage, we have a problem. In other words information is not enough," he added.
Stressing that the current pensions system was unsustainable because people were now living longer, Mr Blunkett hinted that he could look at compulsory saving, although he insisted he did not have a plan yet.
The Pensions Commission, charged by Mr Blair to look at ways of reforming the pensions system, is due to report in November.
Options being considered to address fears about a looming UK pension shortfall include proposals for higher taxes, a higher retirement age, or compulsory savings.
Mr Blunkett said he had an open mind on the way forward and had not ruled anything in or out.
Responding to critics who claim that the government wishes to postpone action on the controversial pensions issue until after the next election, Mr Blunkett said that a decision would be taken within the next two years.
Official reports suggest that more than 12 million people are not saving enough for their old age.
Prime Minister Tony Blair has previously warned that there would be "real difficulties" introducing compulsory savings, but Mr Blunkett said merely giving people information "is not enough".
"We have a responsibility to make sure there is sufficient for people to live on," he told BBC One's The Politics Show.
"I think it is a very interesting question as to whether government has a responsibility for actually making people go beyond that. But we certainly have a responsibility to ensure they know the consequences of not doing that."
"Whilst the evidence is that good information, education, awareness is vital...the truth is if four million people who have good occupational pensions to which the employer is contributing are not taking up the option of adding their resources in at this stage, we have a problem. In other words information is not enough," he added.
Stressing that the current pensions system was unsustainable because people were now living longer, Mr Blunkett hinted that he could look at compulsory saving, although he insisted he did not have a plan yet.
The Pensions Commission, charged by Mr Blair to look at ways of reforming the pensions system, is due to report in November.
Options being considered to address fears about a looming UK pension shortfall include proposals for higher taxes, a higher retirement age, or compulsory savings.
Mr Blunkett said he had an open mind on the way forward and had not ruled anything in or out.
Responding to critics who claim that the government wishes to postpone action on the controversial pensions issue until after the next election, Mr Blunkett said that a decision would be taken within the next two years.
posted by Bruce Wayne at 7:34 AM
Blunkett hints at compulsory retirement savings
5 Comments:
Compulsion is not the answer, it would be viewed by both employers and employees alike as yet another stealth tax.
Anon,
It will surely cost people (and the tax payer) much more if people bury their heads in the sand and don't provide for their retirement?
It would be great if everyone saved for retirement, if they were intelligent in their financial decisions, patient in their investments, and persistent in saving.
But you can't force people to do these things. Would you just take 5% from everyone's paycheck and put it into a national "pension"? People would riot if the government forced this (see social security).
Everyone knows that saving for retirement is good. But people will also buy that car that they didn't need, that plasma tv that was important for the game, that cruise that just needed to be taken.
Simply put, if SS tax revenues had been put in bonds in individual accounts, the bond return rate in most cases would outperform SS. Even if SS had been invested in securities as a general fund, it would have gained enough to provide basic benefits in perpetuity. Sadly, it was not.
So, in that we have compulsary contributions anyway, let us at least have an option of which compulsary scheme we would like to be involved in.
I am in favor of compulsary retirement savings, and even a basic contribution benefit (unearned retirement tax credit) for those who's income is inadequate to make a contribution.
This would go quite a distance in assuring a perpetual funding scheme for a basic retirement for all. (of course, then we may want to discuss how to handle the undocumented workers, etc, so on and so forth...)
Sadly, like it or not, we are our brother's keeper. SS was created because there was a need. It is far less costly than the alternative. Some will say that the alternative, to do nothing, gives everyone the freedom to determine their own retirement needs. That sounds so fine, but the truth is that it inevitably leads to a class of elderly impoverished. It is, in short, a needed safety net. We currently require that drivers have automobile insurance. Why? Why not give people the freedom to decide for themselves whether they need such insurance?
I think that's really the point. The issue isn't whether retirement funds should be voluntary. Rather, I think all want it to continue to be mandatory, but not run by the government. They want you to pay money into a private concern for your retirement benefits.
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