5p on income tax to end poverty

FORCING people to save for their retirement would end pensioner poverty but could add as much as 5p to income tax, according to one report on compulsory pensions.

The cross-party Pensions Reform Group has proposed a single new pension fund into which all workers over 25 would have to contribute a percentage of earnings.

All pensioners would then receive a flat-rate pension from it on top of their State pension, regardless of what they put in. They would also be free to continue saving in other company-based or personal schemes. The proposed new Universal Protected Pension would require people to pay in an estimated 5.2% of earnings if the retirement age is kept at 65. This would drop to 2.2% if the retirement age is raised to 70.

However, there would be savings in other areas of Government spending. All pensioners would be paid enough to lift them off means-tested benefits, which would save £10bn, or 4p in basic rate income tax.

The PRG, chaired by the former Social Security Minister Frank Field, says: 'We hope to break with decades of confusing pensions policy that have contributed to high levels of pensioner poverty and a bewildering system of retirement provision understood by almost no one.'

A quarter of pensioners live below the poverty line, with experts saying the outlook is grim because of rising longevity and falling investment returns. The crisis has been highlighted by the recent rush of blue-chip employers ending traditional pension arrangements.