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Tuesday, 17 December, 2002, 19:39 GMT
Mixed reaction to pensions green paper
Police officers, firefighters and nurses
Public sector workers may have to work until the age of 65

The UK pension crisis is far from over, according to industry experts.

Ros Altmann, governor of the London School of Economics, gave the reform proposals set out in the government's pensions green paper just four marks out of ten.

People need more incentive to save and this green paper does not deliver

Ros Altmann governor London School of Economics

Ms Altman told BBC News Online that while the paper had addressed the need to allow employees to work for longer, it would do little to encourage them to save more.

Ms Altmann added that the green paper held out little hope for employees facing the closure of their company final salary pension schemes.

Simplified pension

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 main proposal is to simplify the tax treatment of pensions.

At present, there are eight different tax thresholds for pensions. The green paper proposed whittling them down to a single lifetime limit on the size of an individual pension pot.

The ceiling for tax relief on retirement savings would be set at 1.4m for both personal and company pensions.

"This is good news and should make understanding a pension easier," Tom McPhail, pension analyst at independent financial advisers Hargreaves Landsdown, told BBC News Online.

Deja vu

However, separate plans to encourage saving through simpler charging structures were less well received.

"We have been here before with stakeholder pensions and it has not worked. People need more incentive to save, and this green paper does not deliver," Ms Altmann said.

The take-up of low-cost stakeholder pensions, launched in April last year in an attempt at encouraging low-paid workers to save, has been disappointing.

Mary Francis, director general of the Association of British Insurers, acknowledged that the green paper contained some "useful" elements, but doubted that it would "fully" bridge the savings gap.

Company closures

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

"The government could have done something today to end the unfair winding up of final salary schemes," she said.

"Instead, it will enter a period of consultation by which time many employees may find that their schemes have closed and their pensions lost."

In particular, Ms Altmann said the government should have ended the rule that treats current employees of firms that are winding up their pension schemes less favourably than those who have already retired.

Working longer

One of the most radical proposals in the green paper will allow employees the option of retiring later, collecting a higher State pension in return.

And new public sector workers from 2006 face the prospect of having their retirement age raised from 60 to 65.

Unison, the public sector trade union, is unhappy at the plan.

"Making people work till they drop is no solution to the pensions crisis.

"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," Dave Prentis, UNISON General Secretary said.

If the plans went though, former public sector workers could be forced to live in poverty, Mr Prentis said.

However, Ms Altmann said that allowing people to work on beyond 65 in the private sector, and beyond 60 in public sector, was simple common sense.

"It is just a shame more has not been done in other areas. This is a wasted opportunity," Ms Altmann told BBC News Online.

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