Britain's leading pensions body said its proposals for a Citizen's Pension could lift ten million pensioners off means-tested benefits but unions and employers said its ideas could harm more than help.
The National Association of Pension Funds (NAPF) outlined its proposals for a Citizen's Pension in a report published last Friday. It said Britons who qualified under residency rules could get a flat-rate pension.
It said its scheme would reduce pensioner poverty, provide a simpler state pension scheme and be fairer to millions of women and carers who lose some of their pension benefits under the current system when they take time out of work to raise a family.
"People want a simpler, fairer system, which does not penalise women who have taken work breaks and which does not subject millions of pensioners to means testing," said NAPF Chief Executive Christine Farnish.
However, the plan has been criticised by the Trades Union Congress and the Confederation of British Industry.
Both questioned the NAPF's plans to use state second pension scheme (S2P) funding to help pay for the Citizen's Pension.
Under current rules, a proportion of workers' National Insurance contributions goes towards the state second pension scheme. If people "contract out" of S2P, the government pays a rebate into their private or work-based pension scheme instead. The NAPF had proposed using S2P funds, to help pay for its Citizen's Pension.
"We have significant concerns about the NAPF's proposals. We support the retention of the state second scheme because we believe it should remain and should be targeted on lower income earners without access to private pensions," said CBI spokesman Jay Sheth.
He said that by using S2P funds the NAPF would undermine occupational pension provision, particularly defined benefit (final salary) pension plans, which were already struggling.
"It would lead to a shortfall at a time when schemes are already struggling with deficits and would be counterproductive," Mr Sheth said.
He also said it was short-sighted of the NAPF to take money that would have been used to fund future pensions in order to pay the current tranche of Citizen's Pension schemes. He said the real squeeze on funds would arise in 20 or 30 years time when the proportion of those in work funding those in retirement was set to shrink.
"If you're saying this is all the state is going to do and for anything on top of that you're on your own it's just not enough," a TUC spokesman told Reuters.
While the NAPF proposals for a Citizen's Pension would cost no more than current state pension arrangements, the cost of raising pensions in line with earnings would have to be addressed, either by an increase in National Insurance contributions or by an increase in state pension age. The report proposed upping the retirement age to 67 by 2030 and 69 by 2040.
Mr Sheth said the CBI's own proposals were for an enhanced basic state pension funded by a rise in the basic state pension age to 70, to be phased in between 2020 and 2030.
The TUC had proposed a universal pension along the lines of the citizen's pension along with a better state second pension and an element of compulsion.
The NAPF report was submitted to Pensions Commission Chairman Adair Turner, who is due to publish his report outlining the ways forward for state and private pension planning in the UK on November 30.
However, NAPF spokesman Andy Fleming said it was also aimed at a wider audience, not least the government.
"We'd also like the government to look at it and take it seriously because the government will have to respond to the commission with proposals on how to move pensions forward by next year," Fleming said.