Pension plan 'missed opportunity'

Expert opinion is hardening that the government's Green Paper does not go far enough to tackle the looming crisis.

Leading industry experts, consumer groups and unions had until Friday 28 March to give their assessment of the paper to the Department of Work and Pensions.

Many key responses are likely to outline drawbacks, including the failure to offer adequate protection to employees facing the closure of their company pension and too few incentives for people to save.

The Green Paper was a missed opportunity to introduce an across the board insurance guaranteeing people get back what they pay in, underwritten by the government.

Sheila McKechnie, head of the Consumers' Association

"There was nothing in the paper that encouraged people to save. The surface has only been scratched on the UK pension crisis," Dr Ros Altmann a government adviser and governor of the London School of Economics told BBC News Online.

"The Green Paper was a missed opportunity to introduce an across the board insurance guaranteeing people get back what they pay in, underwritten by the government," Sheila McKechnie, head of the Consumers' Association said.

But there was praise for the government's plans to encourage workers to stay in employment longer, although unions are opposed to this becoming compulsory.

Working longer

The green paper set out possible ways of increasing the amount of money employees set aside for old age.

An increase in savings is needed to close the estimated £27bn gap between what people have actually put aside, and what they would need for a comfortable retirement.

The government outlined plans to encourage people to remain in the workforce for longer.

Workers under 50 years of age can expect to live well into their eighties. As a result, in future, people will spend longer out of work than in it.

Read pensions Green Paper Q & A

"Pensions are not designed to last 30 years: by 2020 the baby boomers will have retired and the workforce will be too small to support the retired," explained Dr Altmann.

"Employers need an age diverse workforce and people are going to have to get used to a gradual wind down to retirement," she said, supporting the government's proposals.

But trade unions were less pleased with the government strategy and opposed the changes becoming mandatory.

"Telling people they must work five years longer seems to swim against the tide of modern employment practice - we very much favour workers being able to choose to work on, but compulsion is wrong," Ben Hurley TUC spokesman said.

The TUC said they also opposed the government step to raise the retirement age of public sector workers from 60 to 65 and to bar workers from collecting their pensions at age 50.

Saving incentives

Industry figures were also sceptical about proposed government action to close the UK savings gap by simplifying pensions and encouraging reduced charges.

Sheila McKechnie told BBC News Online that the it was essential for the government to introduce an insurance scheme to protect all members of a pension scheme.

"Consumers are frightened they have been hit by mis-selling, poor performance and now firms closing pension schemes," she said.

Dr Altmann said that the government ought to reform tax relief on pension contributions to favour low earners.

In addition, the independent pension commission headed by Adair Turner, former Director General of the CBI, has been set up to examine whether there is a case for compulsory pensions.

This underlines the recent call by Amicus trade union leader Derek Simpson for membership of company pension schemes to be mandatory for all employees.

Opportunity missed

The green paper promised long drawn-out consultation but little action for employees whose final salary pension schemes were being closed or wound up.

In particular the government has come under fire for not ending the rule that treats current employees of firms that are winding up their pension schemes less favourably than those who have already retired.

The government is also consulting on whether savers should continue to be compelled to use the bulk of their pension pot to buy an annuity - an income for life - by age 75.

Ministers are then liekly to give the go-ahead, once the consultation period is over, to the production of a government pensions white paper.

The white paper will outline the government's revised policy and the process will then move forward to the bill stage.