Call for 'simple' pensions systems

The Pensions Reform Group's primary aim is to abolish pensioner poverty

The Pensions Reform Group, led by Labour MP Frank Field, has published proposals for a radical overhaul of the pensions system.

The report - Universal Protected Pension: Modernising Pensions for the Millennium - proposes a new funded pension, the Universal Protected Pension.

Funding the scheme would involve a 5% increase in National Insurance Contributions.

But, according to the report, the scheme would create a better pension than currently offered under the state system.

The report, which is the result of a collaboration between business, parliamentarians and academics, also proposes to limit severely the use of means testing, a method currently popular with government as a way of determining eligibility for benefits.

Welfare Reform

The primary aim of the Pension Reform Group's proposals is to abolish pensioner poverty in the UK.

Almost a half of all pensioners have annual income of less than £5,200 a year.

Since New Labour was elected in 1997, it has embarked on a radical overhaul of the welfare system.

The main change has been to transfer, through tax credits, responsibility for a range of benefits from social security offices to the Inland Revenue.

Tax credits are generally means tested, meaning that the amount recipients get depends on a raft of factors - typically levels of income and savings.

Pension credit

While the government has embarked on a four-part reform of the pension system, including the introduction of stakeholder pensions and the minimum income guarantee, the major reform, pension credit, will be introduced in 2003.

The pension credit is designed to ensure a minimum income of £135 for pensioners.

The Pensions Reform Group, however, said that its plan would provide a greater level of income.

Under its plans, means testing would be almost entirely abolished, and there would be no need to purchase an annuity.

Pensioners groups are wary of further means testing of elderly people, and the Pensions Reform Group said that the pension credit would extend means testing from one third to a half of all pensioners when introduced.

Stumbling block

The report is also critical of stakeholder pensions, introduced by the government to try and encourage people on low incomes to save for their retirement.

Recent figures published by the Association of British Insurers have indicated that take-up of the scheme has been lower than hoped.

Many observers now believe that the government will eventually make stakeholder pensions compulsory.

It is unlikely that the all of the proposals will be embraced by the government.

Mr Field had a well-publicised run-in with the Chancellor while he was the UK's first Welfare Reform Minister after Labour retook power in 1997.

Mr Field wanted to make it compulsory for workers to pay into a state second pension, but it is believed that the Chancellor warned that this measure would be interpreted as a tax.