'Force everyone to get a pension'

SIR Howard Davies, head of the Financial Services Authority, has called for everyone to be forced to set aside money for retirement. In an unprecedented challenge to Government policy, Davies, chairman of the watchdog, said: 'I am personally in favour of some form of pension compulsion.'

His stance puts him at loggerheads with the Government, which has so far resisted the idea of forcing people to join pension schemes. Instead, it has used tax breaks as encouragement. It launched the stakeholder pension, which was designed for those outside company schemes, but the take-up has been disappointing, with 750,000 sold against a target of more than three million.

Davies delivered his controversial views at a meeting of top fund managers. He made it clear that he was talking in a personal capacity and not in his role as chairman of the FSA.

He acknowledged that bringing compulsion into the pensions equation would be 'extremely difficult politically'. 'The problem with stakeholder pensions is that for many people who haven't saved earlier, it's not necessarily a good deal,' he said. 'For anyone in their fifties, earning an average income, the return on a stakeholder pension can be zero.'

Regulating pensions is the responsibility of the FSA, and Davies said it would be much more straightforward if people were forced to have a scheme. He said: 'If it's compulsory, the regulation is quite simple. You ask: 'Have you got one?' If the answer is no, then you must get one. It makes it easier to go out there and market these things more proactively.'

Davies's comments come as the FSA prepares to publish a report into the risks faced by consumers and pension funds as the population lives longer and the Government moves away from direct state provision. With stock markets continuing to flounder and pension schemes transferring their investment risk away from companies and on to individuals, confidence in private pension providers is low.

In the report, the FSA says it plans to encourage people to provide for a pension. It also says it will put pressure on fund managers to explain their products, and their risks, more effectively. But it stops short of a call for compulsion.

Carol Sergeant, an FSA managing director, said: 'The consequences of an ageing population have not yet been fully appreciated. There are risks here, but there are also opportunities for innovative products and services that address the changing needs of consumers. It will not be enough for the industry simply to continue offering the products that worked 30 years ago.'