28 March 2003
Government proposals aimed at preventing the £29bn pensions 'timebomb' from exploding are not radical enough, ministers were warned this week.
Final submissions on Work and Pensions Secretary Andrew Smith's green paper, published last December, reached Whitehall on March 18.
As well as encouraging people to defer taking their state pension until 70 by paying them a lump sum bonus of £20,000, Smith proposed an overhaul of occupational pensions.
This included raising the age of retirement in the public services to 65, a new regulator to focus on high-risk schemes and those at risk of fraud, a simplification of schemes available and a new tax regime to encourage saving.
The Department for Work and Pensions has flagged the proposals as a cure-all for the growing gap between the cash currently available for UK retirees and what they will actually need – estimated at £29bn.
But think-tanks, trade unionists and consultants have warned that Smith has ignored much-needed changes to the state pension scheme and employer responsibilities.
Alison O'Connell, director of the independent Pension Policy Institute, told Public Finance: 'The planned amount the government is going to spend on the state pension over the next 40 years, for example, is just 5% of GDP. That's not nearly enough, when you consider the UK will have an abundance of retirees by then.'
O'Connell also said Smith had not properly considered the benefits of restoring the link between the state pension and earnings, which ministers claim is 'unsustainable' in the long term.
The TUC said the biggest oversight was the government's failure to make compulsory the membership of, and employer contributions to, an occupational pension scheme.
Its submission called for 'long-term pensions security through compulsion, and linking the state retirement pension to wages' to guarantee it acts as a foundation on which everyone can build.
Smith has established a commission, headed by Adair Turner, the former director general of the CBI, to look at the possibility of compulsion, but he is thought to be against the idea.
Watson Wyatt, the UK's biggest pension consultant, in its submission called for a state-funded 'safety-net benefit' aimed at lifting the majority of pensioners out of means testing – another omission from the green paper.
The idea of allowing people to work until 70 was, however, well received by most experts, but many warned that it should be voluntary.
PFmar2003
