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UK told pensions compulsion not the answer

UK – The UK government has been told by left-of-centre think tank the Fabian Society that compulsion is not the answer to the current problems in the pensions industry.

“More compulsion is not the answer,” said the society’s, which is affiliated to the ruling Labour Party. “Compelling companies to contribute to their employees’ pensions does not, of course, produce free money.

The comments come in an open letter to new pensions minister Alan Johnson from the society’s research director Richard Brooks, co-author of the Institute for Public Policy Research’s ‘A new contract for retirement’.

And they come just weeks before the Pensions Commission is set to publish its interim report on the UK’s pension system.

“While the costs would initially fall on companies, they would soon adjust wages to compensate,” Brook said. “Compelling companies is thus a way of forcing individuals to save. If individuals are compelled to save, and as a result lose entitlement to means tested benefits, they will be furious.”

“One of the important reasons people are not saving more at the moment is because they are rightly concerned that it is not in their interests to do so. Compelling people to do what they reasonably oppose doing of their own free will is dangerous politics.”

He argued: “Rather than increasing compulsion, government needs to send a clear message to individuals about their rights and responsibilities.”

Brook said there is no pensions crisis in the UK. “Crises are by definition acute, unstable moments of change. What we have are serious, long-term problems.”

He added: “You have a great opportunity to put both current and future pensioners on a sound footing for many decades to come.”

“This is not to say that pension reform is easy. However it is the politics, not the policy, which is the big headache. The temptation will be to duck an issue where the pain of reform may be felt quickly while the benefits will accrue over many years.”

Brook pointed out “three strategic options” for the government. They include: continue to make minor reforms to the pensions system; increase the level of compulsion or simplify the system and restore savings incentives.

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