The EEF is the first significant business organisation to demand that compulsion be introduced.

Its plan is outlined in a package of pension reforms submitted to the Pensions Commission.

"We have to face the fact that pensions are going to cost more in the future," said Alan Wood, president of the EEF.

Minimum contributions

The EEF's proposed reforms suggest that employers and individuals should eventually both be compelled to contribute at least 4% of a workers income into a new national scheme of investment funds.

The EEF's plans, costed by the Pensions Policy Institute, also include an enhanced state pension system that would provide at least 21% of national average earnings at the age of 65.

Other business organisation such as the CBI and the British Chambers of Commerce have opposed compulsion. They have argued it would lead to greater costs for employers.

But Alan Wood said: "It's something that has to be faced up to. We do need to start planning now for a better system for the future."

The Pensions Commission will publish its second report, with policy recommendations, by the end of this November.