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.

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Social Security minister Alistair Darling took your questions. To watch the Talking Point forum, please click the link below.

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Highlights of interview:

Newshost:
First of all can you explain why the Government have introduced stakeholder pensions now and why it is playing a key role in your pensions strategy?

Alistair Darling:
We want to make sure that people on moderate and higher incomes who can save for their retirement, do so. The problem we had is that whilst some people were in good occupational pensions and there were others who had their own personal private pensions, there were a lot of people who did not have access to funded pension provision.

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.

Newshost:
For people who don't save for their retirement and rely on the state pension, how bad will the situation be for them in the next generation - say the next 25 or 30 years?

Alistair Darling:
Pension provision in this country has always been a partnership between state provision for the basic state pension and funded provision. Most people in this country have a second pension; either the state system, SERPS, which we have amended to make it much advantageous to the low paid, who frankly shouldn't be in a funded pension for the most part, and also the funded sector - occupational, stakeholder pensions, personal pensions.

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.

John Turner, UK:
Why have you missed the opportunity of making the stakeholder pension compulsory and wasn't that the original idea of the whole scheme?

Alistair Darling:
It is often overlooked that if you are employed in this country, you are compelled to save for your retirement - it is called National Insurance. The choice you have is whether you stay in the state scheme - that is SERPS - or whether you contract out and you go into a funded scheme - up until now just an occupational pension or personal pension and from today a stakeholder pension. So if somebody is employed at the moment they are already compelled to save through the National Insurance system. What we are saying is that for these people on moderate or higher incomes then, in many cases, they might be better in a funded pension and the stakeholder pension gives them a better option. So the compulsion is already in the system - there is nothing new about compulsion - what the stakeholder does is to give people a new option that wasn't there before.

Newshost:
But there are some groups of people - the self-employed for example - that aren't compelled to save for pension and that presumably under your scheme is not going to change?

Alistair Darling:
Yes you are right. The self-employed don't pay the same National Insurance contributions as employed people. What I have said for a long time now is that until we had choices for everyone to compel people to save, it would mean that in some cases you are pushing someone, perhaps on a low income, into a personal pension and that might not be appropriate.

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.

SD, Edinburgh, UK :
Why is the burden of administering the payments and transferrals of stakeholder pensions being placed on employers? How does the Government plan to monitor small businesses to ensure they are complying with employees' instructions?

Alistair Darling:
What we have said is that anyone who employs five people or less is not going to be affected. But if you employ five people or more then all you have to do is to designate a stakeholder pension for your employees. You say to your employees - "So and so is the person that would provide you with a stakeholder pension" and also to allow payroll deductions so they can make their contributions. Employers had to do this anyway through the National Insurance scheme so there is isn't anything new in that. So the requirement on employers is actually not that onerous it is simply to designate a particular scheme and the occupational pension regulatory authority, OPRA, can help them do that. It will maintain the lists and it can point them to who the providers actually are.

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.

Brian Alvey, Pembroke, Wales, UK:
Why should the already advantaged wealthy of the country get the additional benefit of "marginal" tax relief on pension contributions?

Newshost:
Another questioner asks why should the Government give the super-rich a tax break? Will this tax break earn more for the rich rather than aiming at the groups that presumably you are targeting?

Alistair Darling:
It is certainly not that - unless you consider someone earning £12,000 a year being super-rich.

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.

Andrew Levens, Cirencester, UK :
What about people in their 50's? We paid trustingly into SERPS, only to have the agreed benefits halved after we had paid in for over 10 years. Then we trustingly set up a personal plan, only to find we had been miss-sold. Why should we now trust the Government's new scheme that stakeholder pensions will be any different?

Alistair Darling:
No because stakeholder pensions are run by the pension providers, in the same way that occupational pensions are and there is a clear contract between that provider and the member of the public. We have done this to strengthen the regulatory system to make sure that there is no miss-selling of the sort that happened in the late 1980s when the Conservatives launched their personal pensions at that time. So the regulatory system is much tougher.

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.

Adam Rowbottom, Manchester, UK :
Does Mr. Darling accept that in a large number of cases, people will pay more in charges through a stakeholder contract, than their existing personal pension? I am also concerned that because of low charges, people won't be able to get proper advice on whether they should switch out of personal pensions or not?

Alistair Darling:
If somebody is already in a personal private pension and they are thinking about going into a stakeholder pension, then you would need to get advice because there may be charges or penalties. If the questioner does have a personal pension then he should take advice.

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.

Paul Robertson, Lincs, UK :
Does it worry you that they are mostly tracker funds, which will mean an increase in direct stock market investment. This has always been risky. Is it suitable for pension saving.

Alistair Darling:
Firstly, if people don't contact out and they stay in the state earnings related pension scheme, SERPS, then they do have a second pension. If you look back over the last 20 - 30 years, people on moderate and higher earnings have actually done much better in funded pensions.

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.

Rob Read, UK:
What are you going to do about the scam that is called compulsory annuities that is putting me off getting a pension? Is the Government going to tackle this issue?

Alistair Darling:
Remember the reason we have annuities is because you get tax relief for making a pension provision. Governments have an obligation to ensure that their own people save for their pension and retirement and that there is actually a pension at the end of it. You can imagine that if someone got all that tax relief and then spent all the money and then they had to rely on benefits - that wouldn't be a good deal for the public as a whole - that is what annuities are for. Annuities are also there to guarantee, in good times as well as bad, that somebody retiring actually does have a pension for the whole of their lifetime.

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.