Personal Finance: Companies stake their claim in pensions of the future

Many of the UK's biggest insurers have rushed to give their views to the Government on the form its proposed "stakeholder" pension scheme should take. Their suggestions include cheap, flexible pensions aimed at giving people decent second-tier pensions. N
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Some minion at the Department of Social Security has a lot of reading to do. His or her reading list will consist of more than 1,000 submissions to the DSS on the Government's proposals for a new system of pensions to take us into the new millennium.

With the deadline for interested parties to give their views gone, civil servants will now be preparing notes for Ministers on the way forward for Labour's brave new idea. A report is expected in the first half of next year.

For the moment, the Government is all ears. John Denham, the Pensions Minister, says: "We are committed to building a sustainable consensus over the future of pensions in this country and hearing other people's views will give us a chance [to do that]."

His comments come amid warnings that the present system of state pension provision is set to grind to a halt within a decade or two. The problem is simple. The number of pensioners is projected to rise from 9.5 million to more than 13 million by 2030. Supporting them under the present pay- as-you-go system is becoming more onerous: by 2050 there will be 2.5 people of working age per pensioner, compared to 4 as at present.

So, what's Labour's big idea? Harriet Harman, the Social Security Minister, has said she wants "secure, flexible and value-for-money second pensions" for those who cannot join employers' own occupational schemes.

The aim of the so-called stakeholder pensions consultation initiative is to involve the private sector, today's insurance companies, in meeting this challenge. Some of the submissions appear to have risen to meet that challenge. Perhaps the most radical, and potentially controversial idea, advanced by many companies, is that pension contributions should become compulsory for those in work. This would probably cost 5 to 10 per cent of people's earnings

Dr Ian Owen, managing director at Eagle Star, one company which offers a low-cost and flexible scheme, argues that new stakeholder pensions must be fully "portable". They must also be flexible enough to accept reduced contributions or payment holidays if a person is not working. Employers should be forced to contribute.

Surprisingly, given that the insurance industry has gained so much from the previous Government's gradual whittling away of the "second-tier" State Earnings Related Pensions Scheme (Serps), Dr Owen speaks highly of it. "The unpopularity of Serps shouldn't blind us to its benefits," he said recently. "It is a truly portable pension with very low costs. It attracts employer contributions and does not discriminate against low income groups." Most proposals, however, involve scrapping it.

Equally radical is Scottish Equitable, which is calling for the link between employment and the right to contribute to a scheme to be broken. If that were to happen, people out of work would be able to top up their pensions, perhaps by utilising some of their partner's "spare" income.

Pearl, which once operated door-to-door premium collections in many working- class areas, raises the question of contribution levels to stakeholder schemes. It is calling for a maximum of pounds 100 a month to avoid misuse of pension schemes for tax reasons. Pearl also wants life insurance cover of pounds 20,000 to be part of the new pensions.

Many proposals include the suggestion that organisations wishing to offer new stakeholder pensions, which could include trade unions and church groups, must obtain a "kitemark" showing it has met certain basic criteria.

Not everyone is willing to see the private sector as the only means of ensuring adequate retirement income. Roger Lyons, general secretary of MSF, the union for professional people, says that without restoring the link between basic pensions and wages, many people will be worse off: "We are calling for a revitalisation of the National Insurance system to provide the means to restore the basic pension and for increased compulsion on employers to contribute."

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