UK – The government should set up a second tier of pension provision within the existing national insurance systems, says the Federation of Small Businesses (FSB), in a research paper that criticises the recently implemented stakeholder pension system.

According to the FSB, the UK’s largest business organisation with 168,000 members, the stakeholder system is flawed in principle and cannot work without compulsion.
It claims that the majority of people taking up stakeholder plans are more affluent members of society rather than the low paid and itinerant workers.
The take up rate it also says is "minimal".

Moreover, Terence O’Halloran, pensions spokesperson for the FSB, says that the government’s announcement for another pensions review two weeks before the stakeholder implementation date in October proved that the scheme was a failure. “This the_review is a tacit statement that stakeholder has failed,” he comments.

The FSB’s alternative system would, it claims, deliver “optimised benefits to the highest proportion of the population in retirement.”

Basically, the call is for a state run second tier approach invested in ‘with profits funds’ managed by life assurance companies and friendly societies. It says that his way, the government could achieve its aim of a fully index linked pension in addition to the basic state pension without any additional cost to the current set-up.

Says O’Halloran: “The result would be a win for everyone. Pensioners gain a superior income in retirement, and administration is reduced for employer and employee alike.” He adds that contributions for employees would start the moment they start work, bridging the gap that exists in the current system.