[A-List] UK legitimation crisis: pensions

["Michael Keaney" <michael.keaney@xxxxxx>]

Threat to make business pay for pensions
CATHERINE MacLEOD
The Herald, 18 December 2002

COMPANIES could be made to pay pension contributions for staff if they fail
to honour their responsibilities on a voluntary basis, ministers warned
yesterday.

The government's long- awaited plans to tackle the growing pension crisis
have "opened the door" for compulsory pension contributions. The proposals
also include measures to help people work on past 65.

The compulsory concept was regarded as a victory for Tony Blair and the
unions. They have persuaded Gordon Brown, the chancellor, and Andrew Smith,
the works and pensions secretary, to override the business lobby's concerns
about the costs of a compulsory scheme.

The closure of many private sector final salary pension schemes has been a
key element in the crisis.

A new independent pensions commission "on whether the current voluntary
system is sufficient to ensure employers and employees rise to the
challenge" will be led by Adair Turner, former director general of the CBI.
He will report regularly on whether there is a case for moving beyond
"voluntarism".

The unions welcomed the possibility of compulsory pension schemes, for which
they have long campaigned, but attacked other elements of Mr Smith's package
for making people "work till they drop".

Groups representing the elderly said the package would not eliminate poverty
in retirement.

The green paper was published as a European Commission report said the
British and Irish governments spend less on pensions than any other EU
country.

It also claimed the share of public spending on pensions in the UK was
predicted to fall further by 2050, from just 5.5% of GDP in 2000 to only
4.4%.

Mr Smith admitted that around three million people were currently not saving
enough towards their retirement, while between five and 10 million would not
have the kind of retirement they wanted.

Blaming the problem on people "living longer", he said: "If people want to
see continuing rising standards of living in retirement, they either have to
save more, work longer, or a mixture of both."

Mr Smith's proposals of helping people continue working past 65 include
ending compulsory retirement ages, enabling people to work and draw a
pension from the same firm, and rewarding people who defer taking their
state pension for five years with a 50% increase in their weekly payment.

The government also suggested raising the normal pension age for all new
public sector workers from 60 to 65.

However, it stopped short of suggesting the state retirement age should be
raised from its current level of 65.

Red tape will be reduced to make it easier for companies to set up and run
occupational schemes, but will force employers to consult staff before
changing schemes, and allow them to make membership of a scheme compulsory.

More protection will also be offered to staff when an occupational scheme is
wound up, with the government saying that it was also looking at a fairer
way of sharing assets when a scheme closed. It added that schemes should
also be compensated for any money lost as a result of dishonesty.

Baffling pension rules will be swept away so the eight existing tax regimes
will be replaced by a single lifetime limit that is assessed only once - at
the point of retirement. The limit will be set at £1.4m.

In an attempt to encourage savings and give people an incentive to save,
individuals will be given more information about their own circumstances.

Employers will welcome the creation of one single pensions act rather than
the plethora of existing legislation, but are expected to be more wary of
proposals to create a new proactive pensions regulator, "to focus on schemes
where there is a high risk of fraud, bad governance, or maladministration".

The CBI said the green paper was a "useful first building block" for
stabilising the pensions system.

John Monks, the TUC's general secretary, broadly welcomed the proposals. He
said: "The green paper is a step in the right direction, and contains many
other very welcome measures. It does not rule out compulsion, although it is
clear that voluntarism is to be given one last chance.

"It rejects raising the state pension age, an important victory for union
campaigning."

Dave Prentis, Unison's general secretary, criticised the proposals as being
ill-thought- out, poorly researched, and unlikely to solve the present
crisis.

He said: "Making people work till they drop is no solution. Raising the
retirement age for public sector workers to 65 is irrelevant, as most
workers are kicked out even before they reach 60 because of ill health,
out-sourcing and redundancy.

"If public sector workers are unable to claim their pensions until they are
65, these proposals will simply force them into poverty for longer."

John Edmonds, general secretary of the GMB, said: "We are not going to stand
by and allow the government to press gang millions of public sector
employees into working until they drop."

Mervyn Kohler, of Help the Aged, said: "We are bitterly disappointed with
the green paper. This was a once-in-a-generation chance to end poverty in
retirement and the secretary of state has failed to rise to the challenge."

-----

Green paper wants us all to save more and work longer
HELEN PUTTICK and TERESA HUNTER
The Herald, 18 December 2002

THE government yesterday unveiled an action plan to defuse the pension
timebomb with four key driving forces.

A more flexible retirement age, simpler tax rules, less red tape for
employers running occupational schemes, and moves to urge people to save
more money were laid out in the green paper to save a top-heavy population
from financial crisis.

Some welcomed the strategy as a "useful first building block" towards giving
people greater security, while others said it shoved the burden on to the
public and failed to make the radical changes needed to steer people from
poverty.

Older retirement age

The green paper suggests removing the compulsory retirement age of 65, and
making it illegal for employers to force retirement on anyone without
redundancy compensation up to the age of 70. New recruits to public sector
jobs, like teaching, nursing, and the civil service, should work until 65,
not 60, to pick up a full pension.

Police, firefighters, and the armed forces will still be able to retire
early, but if they leave before their services' normal pension age then they
too must wait until 65 before receiving a deferred pension.

Raising of the state pension age from 65 was ruled out by Andrew Smith, work
and pensions secretary. However, people who delay claiming a state pension
for five years to the age of 70 will enjoy a 50% increase in their weekly
payments or a lump sum based on the pension they have forgone.

The proposals also drop rules that prevent people in occupational schemes
from mixing work and retirement.

Organisations representing the elderly, including Age Concern Scotland,
welcomed the moves to make retirement more flexible while retaining the
state pension age of 65.

Don Steele, director of social policy for the Association of Retired and
Persons Over 50, also applauded the move, saying: "Our policy has always
been that employees should have the option of choosing their own retirement
in the decade between 60 and 70."

However, while recognising deferring retirement would give 70 year-olds a
lump sum of £20,000, the association questioned how easy it would be for
people to work in their late 60s, saying: "The problem of age discrimination
for older workers trying to remain in or re-enter the workplace shows no
sign of diminishing."

Others suggested this would only be an option for a minority. Paul Kenny, a
senior official of the GMB union, said: "To talk about working until 70 may
have an attraction for some people, but the vast majority of workers are
worn out before the current retirement age of 65."

Taxation overhaul

Plans to overhaul radically the way pensions are taxed were also announced.
Mr Smith claimed to be wiping out eight different tax regimes and replacing
them with a streamlined system that allowed substantially higher tax-free
contributions.

He proposed allowing anyone to put up to 100% of their annual salary
tax-free into a pension. There would be a cap on saving of £200,000 a year
and £1.4m in a lifetime - although only 5000 people, typically company
directors, are believed to have pension pots of this size.

According to the government, these new tax rules will allow 99% of people to
save more in a pension than currently allowed.

John Cridland, deputy director general of the Confederation of British
Industry, praised the proposals for simplifying pensions and said employers
would be pleased about the streamlining of tax incentives.

However, some commentators implied that while the changes were useful, they
did not deal with the real problems Britain faces funding future generations
of pensioners.

Deirdre Hutton, of the National Consumer Council, said: "Simplifying some
parts of the pension puzzle is a wasted effort if the government continues
to make public provision even more complex."

Maureen O'Neill, director of Age Concern Scotland, said: "The move to
simplify the pensions market is welcome, but there is a long way to go to
restore confidence in the pensions system."

Company providers

The red tape binding occupational pension schemes is to be slashed under the
strategy.

Providers will see at least £80m a year shaved off the cost of administering
packages, according to the Treasury. Fewer tax rules mean they will have to
carry out significantly fewer tests to ensure members are eligible to join
and their contribution is legal.

Currently, providers have to design their deals to meet Inland Revenue
limits on annual contributions, the speed at which benefits accrue, and
final benefits. These will also be removed.

In addition, firms will be allowed to make joining their pension scheme a
condition of employment, although they will also have to consult with
employees before making changes to their scheme.

Workers stand to benefit, too, from greater protection when schemes wind up.
The green paper alludes to an insurance policy to protect members against a
scheme or employer going bust, and makes a commitment to looking at a fairer
way of sharing the assets when schemes do close, with more priority for
those who are 10 years away from retirement.

A new beefed-up watchdog, to police workers' investments in their pension
aggressively, is also recommended.

The National Association of Pension Funds approved of these changes, saying:
"The tax review makes a number of radical proposals which will make it
easier for firms to retain their pension schemes, and offers the prospect of
some employers being able to offer schemes where there currently are none."

However, others were less sure. Duncan Tannahill, chief executive of Glasgow
Chamber of Commerce, welcomed the blitz against bureaucracy, saying: "The
sheer volume of regulations can be a barrier to firms who want to establish
pension schemes for their staff."

But he expressed disappointment that tax relief was not being restored on
pension fund dividends, saying: "Removing this tax concession has saddled
businesses with a larger bill for their employees' final salary pensions,
and along with poor stock market performance, this has forced the closure of
many such schemes."

The collapse and winding-up of company schemes, as well as the end of
generous salary-related deals, is seen as a blow to a nation preparing to
care for more elderly.

There are fears a new regulator, plus tougher winding-up rules, may open the
floodgates to even more scheme closures ahead of any of the proposals
becoming law in 2004.

Bill Morris, general secretary of the Transport and General Workers Union,
suggested employers were being allowed to "evade their responsibilities by
withdrawing from, or closing down, schemes, with the government watching
from the sidelines like a spectator".

Roger Lyons, joint general secretary of union Amicus, also attacked: "The
government has failed to address the full magnitude of the crisis in this
green paper and this will condemn millions of people to poverty in their old
age. The real issue is that pensions are under attack by employers and not
enough is being done to protect them."

Encouraging saving

To urge people to prepare for their old age, a new pensions advice line and
an improved web-based retirement planner are now on the cards.

Mr Smith also wants to give people a more realistic picture of the income
they can expect on retirement by massively extending the coverage of
combined state and occupational pension forecasts.

In addition, he is looking at reforming the annuities market and regulating
equity release and home reversion plans to enable people to release money
from their properties.

However, it has not yet been made compulsory for either employers or
individuals to contribute to pension schemes.

Mr Morris described failing to introduce compulsion as a "missed
opportunity".

The paper has also been criticised for failing to address the use of means
testing - thought to deter many people from collecting entitlements.

Annabelle Ewing, the Scottish National party's shadow social security
spokeswoman, said: "It is estimated that 18% of Scottish pensioners are not
claiming means-tested benefits, compared to 10% in the UK as a whole."

Ms O'Neill, of Age Concern Scotland, added: "It is essential to remember
that the basic state pension is still the basis for income in retirement,
and must be set at a reasonable level. If its level is allowed to fall ever
lower, then the savings hurdles is even greater."

Teresa Hunter is personal finance editor of the Sunday Herald
At a glance
Longer working lives

An end to compulsory retirement ages except where there is a justification,
raising the normal pension age for new public sector workers from 60 to 65,
giving people who defer claiming the state pension for five years a 50%
increase in their weekly payments or allowing them to take the difference as
a lump sum. Also allowing people to continue working for a firm from which
they are drawing a pension, and new legislation against age discrimination.

Tax simplification

Sweep away the existing eight tax regimes for pensions and replace them with
one. The introduction of a single lifetime limit of £1.4m and an annual
limit of £200,000 of pensions saving that can benefit from tax relief.

Occupational schemes

Reduce red tape, making it easier for employers to set up and run
occupational schemes, allow firms to make membership of their pension scheme
a condition of employment,

make firms consult employees before pension schemes are changed, set up an
independent commission to monitor the voluntary approach to pensions and an
employer led task force to identify best practice, reform the minimum
funding requirement and simplify contracting out rules, consolidate pensions
legislation into a single act, look at a fairer way of sharing assets when
schemes close with more priority for those who are 10 years away from
retirement, give more protection to members when employers wind up schemes,
ensure schemes are compensated for any money lost as a result of dishonesty.

Helping people to save more

Extend coverage of combined state and occupational pension forecasts, set up
a new pensions advice line and an improved web-based retirement planner,
introduce products in line with recommendations in Sander Report, look at
reforming annuities market.

------

'Relaunch of too many old ideas'
CATHERINE MacLEOD
The Herald, 18 December 2002

CRITICISM of the government's plans to tackle the pensions crisis came from
both the opposition ranks and Labour's back benches in the Commons
yesterday.

David Willetts, the shadow pensions secretary, welcomed the measures but
said some had been in the pipeline for years and he suggested they did not
go far enough.

He said that as document after document poured out from the government, the
crisis in funded pensions had got steadily worse.

"Do you realise how serious the crisis is? The speed at which pension funds
are closing has doubled in the past year. Half of Britain's leading
companies have closed their pension schemes to new members."

He said the government's proposals contained "too many old ideas, rehashed
and relaunched".

Mr Willetts said that what had been "announced" had been announced by the
government five times already. "We don't need more consultation," he said to
Tory cheers. "We need action."

He added: "The truth is that British pensions are in deep crisis. Millions
of our fellow citizens face an impoverished retirement."

For the LibDems, Steve Webb described the proposals as "an Arthur Daley
scheme". He said: "What you have failed to do is to address the tough
choices."

The SNP's Annabelle Ewing said: "Means testing is demeaning, unduly complex,
acts as a disincentive to save, has a negative impact on take-up, and hence
is failing our pensioners."

Labour's Paul Flynn said the only practical solution was a scheme based on
compulsory contributions.

Frank Field, the former social security minister, welcomed unreservedly the
simplification proposals. But he warned: "This statement will be the last
throw to make the voluntary system work."

-----

Pension circus goes on
The Herald, 18 December 2002
Editorial

A confused government has done little to allay fears
IF more of us are to enjoy the quality of life in retirement we expect, says
the government, we must either save more or work longer or do both. However,
plunging stock markets around the world, investment scandals such as the
Equitable Life affair, a chancellor looking for an easy hit on the tax
treatment of pension fund dividend income, and more and more companies
anxious to cap their own exposure to their underfunded occupational schemes
have all conspired to ensure that, whatever we do manage to save for our old
age, it may not turn into nearly enough to pay for our dreams. The blizzard
of consultative papers which accompanied Andrew Smith's pensions statement
yesterday has little to say on any of these inconvenient realities. In
particular there is no promise to rescind the ill-judged £5000m-a-year raid
on pension funds Gordon Brown first launched in 1997. There is some vague
talk of offering "better protection" for those who join pension schemes. But
nothing about the kind of insurance protection already in place in the
United States.

Instead, we are being offered a radical simplification of how our tax system
currently treats pension savings. A myriad of tax codes and limits on
different kinds of schemes is to be swept away. Most of us will look at the
new limits on individual tax-exempt pension savings being proposed as
replacements - a lifetime limit of £1.4m and an annual limit of £200,000 -
and gasp: if only. For most of us, particularly those in the earlier stages
of their working lives, juggling the costs of housing, children, and unpaid
student loans and endowments, being offered participation in inferior
occupational schemes with much-lower employers' contributions because
final-salary schemes are already closed to new members, saving for a pension
that may lie 40 years or more away at anything remotely approaching these
limits is sheer fantasy. Therein lies one key weakness of the government's
whole approach. This green paper does little to allay the pension fears of
middle-income, working Britain. Those who want a simple answer to a
straightforward question. If I do save more for my retirement, what
guarantees do I have that the money will still be there when I need it?

Simplifying the tax treatment of pension savings is a good idea. Casting it
in the way the Treasury has, with that £200,000 annual limit, makes it look
like a recipe for some fresh thinking on tax avoidance among the 90,000 of
us who currently earn that and more. No equivalent simplification is planned
at the other end of the income scale for our increasingly complex state
pension system. We already have the minimum income guarantee. From next
October we will have the pension credit. Government continues to resist all
calls to scrap this complexity and pay a bigger basic state pension instead.
It also, despite the facts of increasing longevity, rejects all pressure to
raise the state pension age. It prefers the power such complexity gives it
to pursue its instincts to redistribute.

The other major fudge in these proposals is over the question of compulsion.
Should employees and employers be compelled to save for retirement? The case
has "not yet been made", claims the work and pensions minister. But the
question is being left open, passed on to an independent commission chaired
by Adair Turner. That's because ministers themselves cannot agree on whether
this is a crisis or a problem that will fade when stock markets recover. If
they cannot agree on that, is it any wonder the green paper fails to deliver
a fully convincing set of solutions?