Pension reform still to be addressed

Harriet Harman may have gone but the pressing problems of pension reform and long-term care for the elderly remain
TONY BLAIR has signalled his displeasure at the slow and uncertain progress of welfare reform by "resting" Harriet Harman. But will Alastair Darling do any better? Welfare to Work is taking its first hesitant steps but, as everyone but Gordon Brown can see, its success or failure depends on whether the economy continues to grow fast enough to create more jobs and offset the increasing number of redundancies now being created, especially in the manufacturing sector.

The crackdown on benefit fraud is at an even earlier stage of development, and depends essentially on better co-ordination of records between different government agencies.

The poorest pensioners and sick people on waiting lists will be catered for in the spending plans announced last month. But that still leaves pension reform and long-term care as urgent policy priorities for Mr Darling to tackle. Even before the possible need for mandatory membership of a private pension has been debated, plans to make private pension plans available for everyone have run into difficulties and need a fresh approach.

Government proposals are rightly being criticised because they imply that managed pension funds that are not eligible for official approval are not as good as tracker funds, which do qualify. There is also a serious risk that novice investors will take the proposed kite-mark as a kind of financial guarantee, which is even more dangerous.

Mr Darling needs to start again, and to introduce a one-star rating for all pension plans that offer low and easily understood charges. Equally important, he must make it clear that three-star status is something that can be attained only after years of successful investment by a company. It simply cannot be earned in advance.

The other task for welfare reform is how to pay for long-term care for an ageing population. The Royal Commission set up by the Tories is due to report by the end of the year. It will probably come out in favour of a version of the partnership plan, whereby anyone who insures for the cost of two or three years in a home will then qualify for state aid if they outlive their insurance policy.

But that will not necessarily persuade people to take out either pension plans or LTC policies. Experience shows that about 20 per cent of people are convinced that they will not live long enough to enjoy a pension, and that if they do, the state will provide for them at the expense of both current taxpayers and those pensioners who have paid for their own future.

Four out of five people die before they qualify for acceptance into an old people's home. That is why only about 5,000 new care policies were sold each year, even though 40,000 people are being forced to sell their homes to pay for care. The fact is that spending money now to buy pensions and policies that they may never need, or live to benefit from, is a double turn-off for many people.

The only way to increase the take-up of these vital elements of welfare reform is to market combined life assurance, pension, care and investment plans that guarantee to pay back some capital if the pension and long- term care are not needed. Even that will require some clever marketing, and a guarantee that the charges are as low and as clear as possible. Such policies will also need tax sweeteners, including tax relief for people to buy plans to pay for parents who are already too old to buy their own policies to protect the family home. That is where Mr Darling should be targeting his priorities, as soon as he possibly can.