Pension planning: Are you one of the 9 million?

FIVE MILLION people could find themselves retiring on less than half their income, according to the Pension Provision Group set up to help the Government's review of pensions.

What about all those people with good occupational schemes or personal pensions? Well the truth is that many of those covered by these schemes are not saving enough. And a third of British employees are not covered at all. The total working population of the UK is about 27 million, of which 18 million are either in occupational schemes or have personal pensions. So around 9 million people are making no contribution to a scheme.

Action by the previous government when trying to make the workforce more flexible and encourage us to buy personal pensions worsened the situation. In 1988 employers lost the power to make membership of their occupational scheme compulsory. Up to one in five employees have decided not to join their occupational schemes. While some will be saving for their retirement with personal pensions, or in other ways, many are making no provision at all.

Most of the missing 9 million are on low wages or have no earnings. Many are women in part-time work or caring for children or relations. The present government aims to increase the number of people saving for their retirement and make sure they are saving enough. Its idea is to introduce stakeholder pensions as a "safety net" retirement income for all workers.

Everyone should have a second pension funded by the individual, on top of the basic state pension. Laurie Edmans, deputy chief executive of NPI and chairman of the Association of British Insurers' Pension Committee, says: "The fundamental issue for the Government is making sure pensioners have enough money in real terms to provide an adequate standard of living."

In the Green Paper on welfare reforms, four weaknesses in the system were identified:

q Many personal pensions on sale now offer a poor deal to low earners and those whose earnings fluctuate considerably.

q Public confidence in pensions needs restoring.

q People are not saving enough for a comfortable retirement yet their life expectancy is increasing.

q It is impossible for carers or others without pensionable earnings to save for a pension.

The stakeholder pensions will be designed to be easy to understand and cheap. They can provide value for money and ensure a good level of pension benefits. Investors must have confidence in the management of their pension funds, and to this end the Financial Services Authority will set high standards to ensure personal pensions are adequately regulated. Kitemarking or benchmarking standards are also under consideration.

Stakeholder pensions will be readily accessible so that contributions can be made on a regular basis as easily as possible, maybe through an employer or trade union. Also being discussed is a "citizenship" version of the stakeholder pension to cover carers.

Compulsion is being considered especially for those not in occupational schemes or without their own personal pensions.

As you would expect, many in the financial services industry favour making stakeholder pensions compulsory. But a significant number of experts disagree. They fear that by setting a low level of compulsory contributions, people will be deluded into thinking they are making adequate provision. The Government may want to avoid handing the opposition a stick to beat it with as compulsion could easily be seen as tax by another name. The effect of compulsion on sales of Individual Savings Acccounts also needs to be considered.

A Green Paper on pensions was due out this month but has been delayed until the autumn. It is now thought legislation will not appear much before the end of the Government's term, with the aim of implementation after the next election.

Delay in bringing forward the proposals is now causing concern. Companies are complaining that some people are putting off looking at their pension requirements until details of the stakeholder pension are agreed. As stakeholder pensions may not be available until some time after 2000, do not use this as a reason for delay.