A U.K. panel urged creation of a mandatory second-tier pension system as part of an overhaul of the British pension system. The Retirement Income Inquiry, established by the National Association of Pension Funds, said retirees would receive a government-backed minimum pension, replacing the current dwindling basic state pension. Benefits would be reduced for higher-income retirees.
The commission also recommended phasing out the State Earnings Relationed Pensions Scheme, which is hard to understand and whose credibility has been hurt from previous benefits cuts. About 80% of British workers contract out of SERPS, leaving mostly lower-income workers in the plan.
Instead, the panel proposed requiring a minimum combined contribution from employers and employees - initially set at 4.8% of includable earnings. Individuals could be covered through an employer-provided plan, a personal pension or through a new National Pension Scheme. The new defined contribution scheme would be administered by trustees, who would set investment policy and hire external money managers.
But observers said the proposal would merely roll the clock back 20 years. A similar national defined contribution scheme was scrapped in 1973, before it ever became operational, out of fears the state would gain control of a massive pool of capital.