The pensions minister on Monday challenged the country's insurance industry to devise low-cost retirement funds to help millions of Britons stave off the risk of poverty in their old age.

Insurance firms have until early spring next year to show how they can deliver cheap products to a mass market as part of a series of reforms to cope with the rising cost of an ageing workforce, Stephen Timms said.

"I want to challenge you to work up the details by February of next year...It must achieve a radical extension of pension coverage and it must deliver a real reduction in cost," Timms told a conference organised by the Association of British Insurers (ABI).

Timms' comments came a week after the publication of a landmark report setting out reform ideas by the Pension Commission, chaired by Adair Turner.

The government will set out its reform proposals by the first half of next year after studying the Pension Commission's ideas, Timms said.

Among the Pension Commission's key ideas is a National Pension Savings Scheme (NPSS) into which employers should be compelled to contribute unless staff explicitly chose not to sign up. Such a system, using existing tax-collection channels, could offer savers a range of funds and be run for a management cost of only 0.3 percent, far below present industry levels, the report said.

The current Stakeholder Pension product set up by the present Labour government, for example, caps management fees at 1.5 percent in the first 10 years of a savers' membership and then falls to 1.0 percent thereafter. 

Stakeholders have been criticised by industry figures for being unprofitable to sell.

The creaking state of public and private sector pensions have shot up the political agenda in Britain and other industrialised nations like Germany, where a rising proportion of elderly citizens is hitting public and company finances.

EXISTING SYSTEMS

A NPSS should make use of the existing financial services industry to deliver pensions, Stephen Haddrill, ABI director- general, told the same conference.

"Our solution would be to build on the steps already taken by the government."
The Pension Commission said a NPSS would automatically enroll staff into company pensions and use the bulk-buying power of billions of inflows to negotiate low fees with fund managers.

Speaking at the same conference, Adair Turner said that similar national systems in countries like Sweden are run cheaply by harnessing state tax collection.

Industry data suggests financial services companies do not find it profitable to sell pensions to many people when prices are capped, as happens with the UK's Stakeholder model of pension, Turner said.

A report issued by the ABI on Monday said 8.3 million working Britons currently saved no money at all for retirement while another 3.8 million people were not saving enough.

Some 54 percent of non-savers say they have no spare money to put aside while 68 percent of people saving insufficient amounts do so because they cannot afford to save more, according to the survey.

The survey, conducted by the polling organisation YouGov, also showed that 71 percent of working age people did not trust the government to deliver state pensions.