Business lobbies are calling for a dramatic overhaul of the pensions system in order to ease the burden on employers.

Groups including the Trades Union Congress (TUC) and the confederation of British Industry (CBI) argue that more emphasis must be placed on individual savings, rather than a flat rate, means tested system, if the UK is to tackle the pensions crisis.

Claiming that the current voluntary system has failed, the TUC called for a level of compulsion, claiming that workers must put aside 15 per cent of their earnings in order to provide an adequate pension.

The calls will form part of the forthcoming Turner review, an independent commission chaired by the former CBI chief, Adair Turner, to investigate the scale of the pensions crisis.

The TUC also urged the government to increase the basic state pension in line with earnings and set at a level above the poverty threshold.

Brendan Barber, TUC general secretary, said: “Companies that provide good pension are asking why they should be undercut by those who don’t. And those that oppose compulsion have failed to find any convincing alternative other than ‘work till you drop; higher retirement ages to make up for the obvious failure of volunteerism.”

Small businesses were also singled out for a tax break by the CBI, which proposed a SME employer tax credit to help businesses struggling with lower earnings and fewer employees.

In addition, the CBI stressed the need for free independent advice for small firms as well as the possibility of ‘seed corm’ funding, with initial government backing to help employers within individual sectors collaborate to provide adequate contributions.

The need to provide aid for employers was illustrated by a recent survey, by Incomes Data Services, which revealed that employer contributions had rose from £5.5 billion in 2003 to £8.3 billion in 2004.

Digby Jones, CBI director general, said: “The real challenge is to encourage those who can afford to save money for themselves, and to provide more support for those on low earnings who will struggle to save enough for an adequate pension.

“That means keeping a meaningful, earnings related, state second tier pension to provide for those who cannot access or afford a private pension scheme.”