Increasing house prices mean that compulsory pension saving is an unrealistic way to minimise poverty in retirement, according to new research.
Today is the last day of public consultation on the Pension Commission’s report into solving the ‘pensions black hole’, which is estimated to stand at £65bn among the FTSE 100 companies.
One of the commission’s initial recommendations for solving the problem was to force people to pay into pension funds.
However, research by Mercer HR Consulting has found that the mortgage cost for a first-time buyer on an average income has risen from 32 per cent of net pay in 2002 to 41 per cent in 2004.
This would make compulsory pension saving unaffordable and unrealistic for many, said Deborah Cooper, senior research actuary at Mercer.
“One size fits all compulsory pension contributions will simply not work,” said Cooper.
Mercer suggests that the basic state pension should be combined with the flat-rate state second pension to provide a single, flat-rate, integrated state pension which increases in line with earnings.
Mercer believes the integrated state pension should be set at a sufficient level for most people to avoid means-tested top-ups and the eligibility age should be high enough to make it affordable.
People could then make supplementary contributions when they were able to, for example, when their mortgages have been paid.