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Last Updated: Monday, 18 April, 2005, 11:50 GMT 12:50 UK
Q & A: Pensions election battle
Elderly woman with grandchild
All three parties have announced their pension policies
The Conservative party has promised 1.7bn in extra tax relief to boost pension saving.

BBC News looks at the scale of the pensions problem, and at the three parties' suggestions for solving pension poverty.


What are the Conservative party's proposals?

The headline-grabbing measure announced by the Conservatives is that basic rate taxpayers who pay into a pension will receive an extra 10 in tax relief for every 100 saved.

David Willetts, the shadow Work and Pensions secretary, estimates that the extra tax relief would lead to a 20% increase in pension saving.

This extra tax relief, or "pensions bonus" as Mr Willetts describes it, would not be available for people paying higher rate tax.

Why are basic rate taxpayers being targeted?

Pension experts have long said that many low and middle income people are not saving enough for their retirement.

INCOME TAX BANDS*
10% rate: 0 - 2,090
22% rate: 2,091 - 32,400
40% rate: over 32,400
*Taxable income (excluding personal allowance of 4,895). Tax year 2005/2006

Many of those who pay tax at the 22% basic rate - the vast majority of the electorate - seem to prefer investing in their homes rather than in pensions, a product regarded with suspicion following mis-selling scandals.

At the same time the system of UK workplace pensions, once the envy of other European countries, has come under enormous pressure as firms try to cut costs by reducing the amount of money they pay into their workers' pension schemes.

The majority of lucrative final salary company pension schemes are now closed to new entrants, or in some cases have been wound up.

According to the Pensions Commission, the body tasked with examining how to boost UK retirement savings, as many as 11.3 million people are not putting any money aside for their old age.

What else are the Conservatives proposing?

The Tories' other proposals can be broken down into measures for now and measures for the long term.

Extra tax relief on pension contributions is meant to encourage more saving, so that over time the widening gap between people's savings and what they need to enjoy a comfortable retirement can be closed.

In the same vein the party has also pledged to reduce pension regulation, to make it easier for employers to keep their pension schemes open.

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For the here-and-now, the over-65s are promised a discount on their council tax and an end to the system of means-tested pension credit.

The party says it will instead re-link state pension increases to earnings rather then inflation, reversing a decision made a quarter of a century ago by Margaret Thatcher.

How does the Labour party propose to tackle the UK's pension problems?

The Labour government has just completed an overhaul of UK pensions.

Under the recent Pensions Act, people who choose to delay their retirement can receive a boost to their state pension when they eventually decide to call time on their working lives.

The big idea is to encourage a more flexible approach to retirement, with those who want to remain in work beyond 65 being allowed to do so.

At the same time, controversially, the government has said it wants to increase the retirement age for public sector workers from 60 to 65.

In a bid to tackle the failing workplace pension system the government has set up the pension protection fund (PPF).

A pension scheme can resort to the PPF if it does not have enough money to pay its members' pensions. MG Rover workers maybe amongst the first to benefit from it.

For today's pensioners, the government has introduced the pension credit to boost the incomes of the UK's poorest pensioners, and announced a 200 council tax rebate this year.

What about the Liberal Democrats?

Many of the Liberal Democrats' policies focus on improving the lot of today's pensioners.

Caring for elderly
The Lib Dems promise free personal care

They would raise the basic state pension by 100 a month and increase it each year, for the over 75s, in line with average earnings rather then prices.

A tax rise for those earnings over 100,000 a year would pay for free long-term personal care.

This would stop older people having to give up their assets - and sometimes their homes - in order to pay for personal care.

The Liberal Democrats would also like to create a citizen's pension - basing entitlement to the state pension on length of UK residency rather than national insurance contributions.

A citizen's pension would benefit women who may have taken time out of the workforce to bring up children and therefore have an incomplete national insurance contribution record, resulting in a smaller state pension.

Are the proposals of the three parties in tune with what experts think needs to be done?

A calculator
Save more, work longer or pay more taxes experts say

Adair Turner, the head of the government's Pensions Commission, has said that the route out of the pensions crisis is clear.

All or one of taxes, retirement age and savings levels must rise to meet the challenge of an ageing population, Mr Turner has said.

Mr Turner will make concrete proposals for what should happen next in the autumn.

Unsurprisingly, none of the parties have seized on Mr Turner's idea that taxes may have to rise to pay for pensions.

Yet the message that people need to be encouraged to work longer and save more seems to have hit home with the parties.


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