Introducing compulsory pensions for employers and workers is the only solution to the £27 billion pension gap in the UK, according to a report by market analyst Datamonitor.
The report said the UK is the only EU country planning to lower public spending on pensions, and points out that other countries such as Australia, the Netherlands, Sweden and Switzerland have already implemented successful mandatory pension schemes.
Countries in the EU currently spend 10.4 per cent of GDP on public pension provision, a figure that is expected to rise to 13.3 per cent by 2050. In contrast, the UK is expected to reduce spending over the next 50 years from 5.5 per cent to 4.4 per cent of GDP.
According to Datamonitor, it is not just low-income workers who are not saving enough for their retirement. Women, graduates and ethnic minorities all rely heavily on state support.
The report calls for the introduction of “no-frills” compulsory occupational pensions that allow flexible withdrawals, protect members from stock market changes and "guarantee consumers an adequate standard of living when reaching requirement."
The entire pension industry needs a 'face lift', the report adds. "There should be a substantial improvement in pension products to make them more suitable to the target market."
Liz Hartley, a financial analyst at Datamonitor, said: "Britain is trying to move away from workers supporting pensioners by encouraging individual saving. However, large consumer segments are failing to contribute to a pension, causing an estimated £27bn shortfall in the amount needed to guarantee an adequate retirement."
She suggests that the Government first introduces employer compulsion, with employee compulsion following later. Not all employees would be included in the compulsory system, however, with workers on the lowest incomes still relying on state support, while small employers or new businesses would also be excluded.
