Commission on Social Justice: Minimum wage warning for Labour as party urged to adopt student loans: Pensions

A minimum pension guarantee paid above the state pension and income support level.

Universal second pensions, possibly by improving Serps.

Every employee or self-employed person and employers to contribute.

Contributions to be paid by the state to people who are unemployed or caring for people at home.

Raising the state pension age for women to 65.

Radical proposals for pensioners would tackle the immediate problem of the estimated three million retired people now living at, or below, the poverty line and also provide a realistic and affordable system for the increasingly ageing population in future by introducing a second, compulsory pension.

In the short term, the proposed minimum pension guarantee would make the poorest pensioners significantly better off, although the commission has not decided by how much.

In the medium and longer term, younger and middle-aged people would be required to take out a second pension which could be a state, occupational or private scheme. All employees, the self-employed, and employers would have to make a minimum contribution but the state would pay for the unemployed, sick and those caring for dependants at home.

Now, a second pension is optional but the commission candidly admits no government can afford to finance a state pension for all which is high enough to provide a decent standard of living. Instead, the commission has emphasised the need for everyone to take responsibility for their own future and provide more to support themselves in their old age.

The most pressing problem is the extent of poverty among people who have already retired. For them, no new savings scheme is possible.

Although the average income of elderly people has risen - since 1979 the top two-fifths of pensioners have seen their income grow by two-thirds - the income of the bottom fifth has grown by only 10 per cent. The proposed pension guarantee would particularly help the bottom two-thirds and ensure that the living standards of all pensioners were raised above the poverty line. Significantly better off would be the poorest third who include 1.4 million single people and 230,000 elderly couples over 60 who in 1992 were claiming income support and also the 570,000 older people who are officially estimated to be eligible for income support but who are not claiming it.

The pension guarantee would be set at a level which is higher than today's basic pension and above income support level. The basic pension is now pounds 57.60 for a single person and pounds 92 for a married couple and can be pounds 15 lower than income support levels - the gap is widest for people aged 80 and over whose income support entitlements are higher.

The pension guarantee level would increase in line with average net (after tax) earnings. Within that framework the Government would have the 'discretion' each year to decide how rapidly the basic pension should rise.

The second big idea is for a second pension for all citizens. In theory everyone now at work is contributing to a second pension, either through the state earnings-related pension scheme (Serps) or through an occupational scheme or approved personal pension plan. But in practice millions are not doing so, including many of the self-employed who are excluded from Serps and not required to join any other scheme, as well as people earning too little to pay national insurance contributions.

The report details two options for establishing the second pension but the commission is split and argues wider debate would be needed before a government introduced it. The first approach is to improve the present combination of occupational, personal and Serps pensions, particularly by improving and extending Serps. The second is to ensure that everyone in work saves towards retirement through a fund either where members' contributions are invested for the future, with government making additional contributions for people who are ill or caring for children or other dependants. Both options for a universal second pension require effective regulation of occupational and personal pensions.

Finally, the report suggests the state pension age for men and women should be equalised at 65, as the Government has already proposed, phased in gradually between 2010 and 2020, subject to the approval of Parliament. This would save pounds 3.4bn a year and, the commission says, should be re-invested to help vulnerable groups.