In a briefing published today (Wednesday) in the week before its annual Congress, the TUC says that a voluntary system can only be cheaper to the extent that it fails to close the pensions gap. A voluntary system has inevitable costs, whether from new tax breaks, subsidies, publicity campaigns or other ways of persuading people to make savings. These will come on top of the actual cost of pensions contributions. Therefore only a voluntary system that fails will be cheaper than a compulsory system.

The briefing (below) also deals with myths that have been peddled about the Australian pensions system, which phased in compulsory contributions as the TUC are urging in the UK.

TUC General Secretary Brendan Barber said, 'Everyone knows there's a growing pensions crisis. People at work today are not saving enough. All the voluntary approaches to shift the responsibility from government and employers onto individuals have failed. A generation of young employees have no idea how much poorer they will be in retirement than their parents.

'The argument for phasing in compulsory pension contributions by both employers and employees is strong - as the Turner Commission recognised. Yet a strong campaign has been mounted against it by some employers and opposition politicians. This briefing shows their arguments are wrong.

'The only way a voluntary system is cheaper than a compulsory system is if it fails to get people saving.'

Mick McAteer of Which!, fellow members of the Peoples Pensions Coalition that earlier in the year called for an extension of compulsion, said: ' It is important to explode the myths about compulsion. Which? Believes it is the most cost-effective, responsible and fairest method of ensuring the UK creates a sustainable pension system. Critically, it is the fairest for future generations of consumers who have no say on how pensions policy is formulated today. '

The top ten myths about pensions compulsion

The depth of the pensions crisis is well known. As the Turner Commission has reported, people are not saving enough to ensure a decent income in retirement. Part of the problem is the retreat of employers from providing decent pensions. Employers have replaced good schemes with far less generous schemes, but the numbers in employment who do not have access to any kind of occupational pension has grown.

The TUC has argued that the only way to halt the employer retreat is a phased introduction of compulsory contributions from both employers and employees, as happened in Australia. An extension of compulsion was a key demand made in the People's Pension Coalition statement backed by the TUC, Which?, Help the Aged and Age Concern. (See http://www.tuc.org.uk/pensions/tuc-10046-f0.cfm )

The call has been controversial and opposed by some employer organisations and politicians. But many of the criticisms have been based on myths. This briefing tackles the top ten myths.

Myth one - Compulsion would be more expensive than voluntarism and would cost the exchequer lost revenue or cost jobs.

The truth: compulsion is the most efficient way of ensuring that people save enough for retirement. Voluntarism is only cheaper to the extent that it fails to get people saving. If a voluntary system succeeded in persuading people to save as much as compulsion would deliver it would be more expensive. The costs of encouraging people to save, whether through incentives, tax breaks or publicity campaigns would have to be paid for on top of increased pension contributions.

Myth two - The public is against compulsion.

The truth: research carried out by Which? in September 2004 found a clear majority of those in work or seeking work in favour of compulsion: 73 per cent agreed it should be compulsory for all employers to contribute to a pension scheme, with 71 per cent agreeing all employees should contribute. A 2004 survey of 1,001 British working people carried out by Chase de Vere found 85% supported compulsory pension saving, with almost 75% still supporting compulsion if they had to contribute.

Myth three - compulsion would displace existing savings rather than create new savings.

The truth: all major studies of the Australian compulsory superannuation system have concluded that it has created much new saving. In last year's Reserve Bank of Australia report it was estimated that over 60 per cent of the additional money in the superannuation system since the introduction of compulsion was new savings. Other studies put the figure at over 80 per cent.

It is actually more likely that incentives - such as new tax breaks - would result in displacement of savings, as the Sandler report concluded.

Myth four - net savings fell in Australia because of compulsory superannuation, and compulsion started a recession in Australia.

The truth: there is no factual evidence to support either of these. The Reserve Bank of Australia report suggests that actually the introduction of compulsory savings has increased the savings rate by up to 2 per cent a year.

Since 1990 Australia has had sustained economic growth and the stockmarket has outperformed other major indices in the region and globally.

Myth five - auto-enrolment is preferable to compulsion.

The truth: auto-enrolment could boost savings, and the TUC has always supported it. But it only works where there is an occupational pension in which employees can be enrolled. A big part of the pensions crisis is the decline in the number of workers covered by decent occupational schemes. Auto-enrolment would not provide a single new scheme - and if it increased the pension costs of good employers it might make it easier for bad employers to take advantage of the lack of a level playing field and undercut them.

In any case auto-enrolment is a form of compulsion. There is a logical inconsistency in supporting auto-enrolment but opposing compulsion in principle.

Myth six - if a minimum contribution rate is set, employers and employees will just contribute the minimum.

The truth: perversely this is true, but it's not a reason to oppose pensions compulsion. The minimum contribution rate at present is zero, and that's precisely what huge numbers of employers and employees contribute to pensions today. A higher minimum than zero can only increase savings.

Of course the minimum contribution needs to be eventually set at a level that will provide a worthwhile retirement income, but a compulsory system is likely to encourage increased voluntary savings as well, as employees will have an easy way to make additional contributions.

Myth seven - Compulsion hits low earners as they would be forced to save cash they can't afford.

The truth: Not necessarily - as it depends how the compulsion system works. The TUC's plan uses a strengthened state second pension working as the bedrock of a compulsory system. This ensures that the low paid are treated fairly - only pay over and above a threshold would face deductions towards a state second pension. The very low paid would therefore pay nothing, and would instead receive credits towards their pension. Those earning slightly more than the threshold would pay a small proportion of their earnings. Compulsory contributions to occupational or private pension provision would only be appropriate higher up the income scale.

But it is certain that a voluntary system does not suit the low paid. Private pensions suppliers are not interested in this market, and small savings in private pensions are swallowed up by charges.

Research carried out by Watson Wyatt for Which? suggests that in the US voluntarism penalises minority ethnic groups for example. Moreover, if government wanted to help lower income groups it could use the cost savings from compulsion to boost savings of lower income groups.

Myth eight - Compulsion is not practical politics

The truth: A survey by Virgin Money in 2002 found that 60 per cent of MPs supported compulsory pension contributions. With public and MP support, all it will take is political will and a willingness to stand up to vested interests.

Myth nine - Employers don't support compulsion.

The truth: In its recent report 'Rethinking Pensions' the Engineering Employers Federation explicitly supported mandatory pension contributions from both employer and employee. The EEF has also found rising support for compulsion amongst its members, in part to enable them to compete on a level playing field with those firms who currently do not pay anything towards employee pensions.

Myth ten - Compulsion would introduce new state interference in how people used their after-tax income.

The truth: There is nothing new about compulsion in the UK pensions system. At present people are compelled to contribute additional National Insurance contributions if they do not contribute part of their income to an opted out pension scheme. Some people who take this line also back auto-enrolment, which surely raises the same principles

The state compels citizens to spend money in many ways - such as compulsory insurance for car drivers. There is nothing philosophically different about pensions savings.

NOTES TO EDITORS:

- Pensions Commissioner Adair Turner will speak to TUC Congress in Brighton at 9.30am next Wednesday (14th September), followed by the pensions debate. To apply for media credentials, now subject to a �50 charge, call 020 7467 1242 before Friday 12 September or register at the credentials office at the Brighton Centre from 9am Sunday morning.