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SECOND STATE PENSION HAS KEY ROLE TO PLAY IN SOLVING UK PENSION CRISIS, SAYS CBI

Lower earners and staff in some smaller firms need to increase savings through access to lower-cost pensions


The CBI has today (Tuesday) come out in favour of revamping the second state pension, seeing it as one of the key steps needed to solve the UK's pensions crisis.


The employers' organisation believes that it is lower earning employees in some smaller businesses without pensions schemes who are most at risk of an inadequate pension in old age.

Consequently the CBI is backing a reformed second state pension that offers lower-cost saving options to this group.

It wants the reformed second state pension to act as a savings top-up linked to earnings, to supplement the basic state pension.

The CBI says the second state pension could be:

  • a funded scheme run by the state but invested by existing private sector experts,
  • based on a system of defined contributions that are linked to earnings,
  • aimed at those who do not have access to occupational pension provision.

John Cridland, CBI Deputy Director-General, said: "Private pensions have helped millions of individuals save successfully for their retirement and will do so in the future. This pensions market is a source of great strength.

"However, a serious gap in UK pension provision exists among lower earners and staff in some smaller firms. They are not saving enough and arguably are not earning enough to fully benefit from what the market currently offers. The best way to plug this gap is to revamp the second state pension so that help is offered to those who need it most."

The interim report by the Pensions Commission found that the administrative costs associated with managing individual pension funds can absorb up to 30 per cent of low-earners' savings.

But these costs can be reduced if pensions are managed collectively in a second state system, unless employees chose to save through a personal or occupational pension. For those with lower levels of savings, a second state pension would increase significantly an individual's income in retirement.

The economies of scales in a revamped second state pension would bring overall administrative costs down. This would increase the final pension pot for someone earning £20,000 a year from around £100,000 to over £135,000, boosting the fund payout by nearly £2,000 each year.

The CBI is still working up these proposals as part of its contribution to the Pensions Commission. This body - chaired by former CBI Director-General Adair Turner - has been established by the Government to consider options for pensions reform. It is expected to report its findings to ministers in the Autumn.

27 May, 2005

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CBI Press Office, 020 7395 8087. Out of hours pager, 076 2397 7854.

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