THE UK should follow the lead of Australia 20 years ago in reforming its old age pension system to make it sustainable in the long-term, according to think tank Reform Scotland.
Their report urges ministers to grasp the nettle and introduce a sustainable system of mandatory contributions to personal pension pots in both the public and private sector. It would replace the current "Ponzi scheme" - a reference to the 1920s fraud - in which investors are paid only on contributions of new investors, leading to potential collapse.
Co-author, pensions expert Alan McFarlane, said: "I have two grandchildren and I want a system that is sustainable for them. If action is taken someone is going to get his or her name written in history alongside Bevan or Beveridge."
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Reform Scotland propose scrapping the employees' NI contributions, which can be up to 12% for low earners but only 2% for those on big pay. Income tax would be raised by 7% but a mandatory 8% pension contribution would be offset in full by a tax deduction, while the current state pension would be phased out over time.
Workers earning £20,000 stand to gain £1422 if they already pay 8% towards their retirement but those without a pension would lose £178.
Those on £50,000 with an 8% pension would benefit by £179 but those without a pension would lose £3812, while £100,000 earners would lose out across the board by £2321 if they have an 8% pension and £10,321 if they do not.
Ben Thomson, an investment banker and founder of Reform Scotland, added: "In reality, people on higher pay will already be contributing at least 8%, so it's not until you get to about £60,000 that you're going to pay more.
"If something isn't done the unsustainability of tax means that tax will have to go up."Since Australia moved to a mandatory contribution model, individual pension pots are now worth 1.7 trillion Australian dollars, providing guarantees for the future and much needed finance for current infrastructure spending.
A Department of Work and Pensions spokeswoman said: "Action is being taken to change state pension age to ensure the system remains sustainable."