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Friday, 6 April, 2001, 12:48 GMT 13:48 UK
Alistair Darling quizzed
Stakeholder pensions go on sale for the first time on Friday. The government is introducing them because the basic state pension is unlikely to provide the level of income most people would like in their retirement.
The new pensions are intended to be a low-cost, flexible and tax efficient way for people on lower and middle incomes to save for retirement. They are particularly aimed at those who don't have access to company pension schemes.
But while many say they are a good idea, some say stakeholder pensions will most benefit relatively well-off people, who can take advantage of the tax efficiencies. Despite an advertising campaign, many people remain unsure whether a stakeholder pension is suitable for them.
Social Security minister Alistair Darling took your questions. To watch the Talking Point forum, please click the link below.
Highlights of interview:
The stakeholder pension is designed to appeal to moderate and higher earners who at the moment can't get into a occupation pension or for whom a personal pension isn't appropriate. There are 45 providers in the field so there is plenty of choice there. The message that we want to get across to people is that if you can save for your retirement, then you should be saving for your retirement, because it always pays to do so.
What we want to do is to use a combination of the state pension and the funded sector to make sure that people have a good pension in retirement. That is what our whole pension strategy is designed to do - to deal with poverty, to make sure that we have got people who can save actually doing that and then when the pension credit comes in in two years time, a cash reward for people who have saved modest amounts as a result of their thrift.
What the Government wanted to do was to make sure that we have choices so that people who, up until now, didn't have the choice of a funded pension, now have a choice. We always keep things under review but we don't have any plans to introduce compulsion.
For many employers, particularly in areas like Edinburgh where sometimes it is quite difficult to recruit people because of the very low unemployment in that city, then offering pension provision is an added bonus. It is not just the wages you are paying but also you are saying to an employee - I have got a pension, you ought to have a pension as well. It is actually in everyone's interest to make sure that more people have proper pension provision. It is in the employer' interest - whether they are a large one or a small one - but we have tried to do our best to make sure that the requirements on the employer are as least burdensome as possible.
The stakeholder pension is aimed at people on moderate incomes and there will be some on higher incomes who are also interested in it as well. But if you look at the enhanced rebates - the additional help which your correspondents are asking about - that tapers out when someone earns about £22,000. So the additional help that people get to save - whether it is in a stakeholder or an occupational pension or a personal pension - the enhanced help that we are giving is actually targeted at the £10,000 - £22,000 a year range and I don't think anyone would call people like that super-rich.
What we want to do is to make sure that people on moderate earnings as well as higher earnings make pension provision. For the people earning less than £10,00 per annum, the state second pension is providing nearly 18 million people with additional help that they never got before. I think that is an important part of the package as well.
I think people do have confidence in the funded sector. One of the reasons that more and more people are retiring in this country on higher pensions is because they have got funded pensions from pension companies. So all the stakeholder pension does is to give more people more options and that must be a good thing. We want people to rely on a combination of a basic state pension - which next week goes up by £5 for a single pensioner and £8 for a couple - as well as their own second pension. That is how pension provision has always been in this country and what the stakeholder does is to give more choice to more people.
Secondly, he asks about the charges generally. I believe that the 1% cap on charges which the stakeholder pension has introduced and which is beginning to spread throughout the whole industry, is one of the best things that we have done to help the public in this country. There was concern about charges that were too high in the past and we wanted to drive those charges down. Two years ago, when we announced the 1%, lots of people said it can't be done and you won't get anyone to sell stakeholder pensions - well 45 big pension providers are in the market now, they say they can do it and many of them are actually reducing their charges to below that 1%. They can give advice, they can discharge all their obligations under the legislation, under that cap.
Secondly, pensions are a very long term province - it is a mistake to look at what happens over a day, week or month and say one ought to be doing one thing or another - they are long term. We do need to take a long term view and all the evidence is that people who are in funded pension have done better than people who are not.
People when they retire should look around because annuity rates do vary. You can sometimes do better than the person you have been saving with - you can sometimes go to somebody else and get a better annuity. Now we always keep these things under review but the central purpose of annuity is to make sure that the vast bulk of the population actually have a pension throughout their retired lifetime.
02 Apr 01 | Business
Gearing up for stakeholders
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