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Thursday, 22 March, 2001, 10:51 GMT
Glad to be grey?
Pensioner sitting in front of electric fire
The welfare of the elderly - a hot topic
How do you detect the coming of spring?

Is it by daffodil shoots and the twittering of nesting birds? Or is it, as those more tied to the indoors might notice, by the slightly heavier thud of the Sunday newspapers on your doorstep?

The development of tax-exempt savings plans has caused a seasonal surge in advertising in personal finance supplements, as finance firms attempt to sign up investors ahead of the annual 5 April deadline for starting Tessas, Peps and now Isas.

But spring, as measured by Your Money-type marketing, came early this year.

Added to the traditional spring adverts littered with graphs, small print and pictures of piggy banks, was a government campaign, featuring a talking sheepdog called Shadow, promoting a new way of saving for retirement - the stakeholder pension.

Population crisis

The scheme, launched in April, is designed to encourage the 40% of Britons without personal pension plans to start one.

Shadow the sheepdog
Shadow: Rounding up support for stakeholder pensions
Such action will protect savers from penury - the government claims that, under the pension policy regime it inherited, one-person-in-three faced retirement on means-tested benefits.

It will also help protect the state from the welfare storm set to sweep most industrialised nations over the next 30 years, as the post-war baby boom feeds through into a surge in senior citizens.

By 2030, the number of Britons aged 65 or more will grow by more than one half - France and Germany will see rises of almost two thirds - representing a huge welfare burden if the state were left to support it alone.

As Jeff Rooker, social security minister, said: "Working people, who can afford it, have a responsibility to save for their retirement. But the government has a duty to help them."

'Seismic shift'

The stakeholder pension scheme will indeed help Britons to save by making payments convenient - policyholders will be able to deposit contributions at post offices, or have them directly deducted from wage packets.

Our pensions reforms are helping to ensure a decent income in retirement for all

Alistair Darling, Social Security Secretary
And saving will be cheap - contributions can be as low as 20, with the firms which invest the cash limited to a 1% management charge.

The stakeholder pension, while aimed at those earning 10,000-20,000 a year, will also benefit a broad range of savers.

Even Britons who do not work will be able to put money away and find their contribution boosted by an income tax rebate - even if they have not paid any.

This extension of the tax relief system, which has traditionally applied only to salaried workers, means that a full-time parent, for instance, will be able to reach the maximum stakeholder pension contribution of 3,600 a year through paying in only 2,800.

The government hopes the scheme will prove revolutionary enough to foster a "seismic shift" in our thinking on saving.

"Our pensions reforms are helping to ensure a decent income in retirement for all," Social Security Secretary Alistair Darling said.

"Stakeholder pensions will, for the first time, provide millions of people with a funded pension."

Red tape

The trouble is the scheme is providing plenty of headaches too.

Many of these are being suffered by businesses which, if they employ more than five people and lack an existing company pension plan, will be forced to act as agents for the stakeholder scheme.

The amount of red tape administering the scheme will involve should not be underestimated

Mark Thomas, Confederation of British Industry
"The amount of red tape administering the scheme will involve should not be underestimated," Mark Thomas, policy adviser at the Confederation of British Industry, told BBC News Online.

Firms, which will be responsible for transferring payments from employees' wage packets to their individual policies, will have to ensure transactions are completed to deadline, and allow for staff to make up to two changes to contribution sums per year.

"If you have a reasonable number of staff, that could mount up into quite a lot of paperwork to deal with every month," Mr Thomas said. "This on top of the red tape the government has already imposed, such as the minimum wage and parental leave.

"Remember we are talking here of firms which do not have their own pension plan, and so are likely not to have much knowledge about how the pensions system works."

Lack of service

Other concerns are aimed at the service, or lack of it, savers and firms will get from a pension industry whose takings are limited to 1% of contributions.

Certainly there are upsides to this cap, in terms of ensuring contributions end up in investors' pots rather than salespeoples' pockets.

Lloyds TSB has taken an 80m hit by reducing charges elsewhere, so as "not to disadvantage existing pensions customers".

But for a 1% cut, providers will be unable to offer much in the way of traditional face-to-face sales, to individuals or firms.

One of the reasons the Halifax last month decided to buy the Equitable's sales team was to allow the benefits of scale "crucial to profitability in stakeholder pensions".

And Britannic, one of the many savings firms to decimate its door-to-door sales teams in recent weeks, is maintaining a 100-strong sales force to support a stakeholder pensions drive which has signed up 2,000 firms before the programme has even started.

Advice needs

The dearth of readily available advice is proving of concern to firms who may be entering the pensions arena for the time.

"This argument now seems to be changing from 'what are stakeholder pensions' to 'what are the implications'," an industry insider, who has been monitoring corporate concerns, told BBC News Online.

"With firms getting rid of their direct sales forces, it is going to be harder for people to get help."

A report published last week by City watchdog the Financial Services Authority, which revealed shortcomings in the advice given to individual savers, may unfortunately be a taste of things to come.

Key report

But perhaps the most fundamental concern centres on a report, not yet published, on the regime designed to ensure even those who have saved are given sufficient support to allow a decent quality of life in old age.

Tom Ross, chairman, Pension Provision Group
Tom Ross: In charge of critical report
The support system includes a pensioners' credit designed to ensure that the elderly are not forced to rely completely on their savings for living expenses, until they drop to the poverty line.

By rewarding a lifetime of saving, or "prudence" as Chancellor Gordon Brown is fond of describing it, the government hopes to encourage Britons to put a bit away for old age.

The government-appointed Pension Provision Group, however, is said to warn in its report that the credit provides so much support that it will discourage saving, and even promote early retirement at a time when workers should be encouraged to remain in jobs as long as possible.

These findings are particularly relevant to a stakeholder pension whose lower-income customer base will include many savers ultimately eligible for pensioners' credit.


The pension has also been criticised by women's groups for its failure to correct in old age the wage imbalance which allows men, who are generally higher paid, to save more than women.

And the scheme is of little use to women who leave work for long periods to bring up children, but lack the cash to make even the 2,800 contribution, Surrey University's Dr Jay Ginn believes.

It is little wonder the Conservatives have proposed, among alternative pension reforms, a catch-all rise in the tax allowance given to elderly people.

The move would at a swoop see 1 million pensioners removed from the tax system, the party claims - a simple move if, as critics point out, benefiting the rich as much as the poor.

The Liberal Democrats propose increasing the state pension by up to 15 a week, besides introducing a compulsory contributory pension for those in work.

Indeed, even after four years of tinkering, consultation and revision, the great pensions debate seems far from being put out to grass.

With almost half the UK population set to be aged over 50 by 2030, there is too much at stake - in terms of both votes and state payouts - to risk getting the sums wrong.

Business view

Pensions background

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