Julian Knight: Better pensions for the less well-off: is that flying a kite?

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The Independent Online

Budget week is all about government officials and lobby groups trying to get their policy kites to fly. This time round, we have had hints of mortgage market reforms and a windfall tax on energy companies. As the big day nears, plenty more kites will take to the skies, only to fall to earth when the Chancellor makes his speech.

But one crucial area yet to come to the fore is pensions and retirement saving. This is probably because ministers think the issue is "done". The three reports from the Pensions Commission, authored by Lord Tur-ner, and the Pensions Act helped settle how the government is going to pay for a population living longer – around 90 years on average. The answer? We all have to work into our late sixties before getting a state pension.

A more urgent issue was the collapsing private-sector workplace pensions system, and in particular final salary schemes. A combination of measures such as the pensions protection fund, the outlawing of firms winding up schemes that were in deficit, and a lightening of the administrative load on employers means we are seeing a relatively orderly switchover from final salary to money purchase pensions in the private sector. This will have to be repeated in the public sector. It's hardly a dream scenario but a few years ago it looked as if it would be much worse.

But where there has been little action – apart from the impending and frankly inadequate personal accounts system – is how to boost the retirement savings of the millions who do not have gold-plated public-sector pensions or huge equity in their homes to fall back on.

On page 18, Kate Hughes explains the plight of the "sandwich generation", those people who have children later in life and as a result have to cope with financing them just as they enter the home stretch to retirement, while also having to find care costs for their own parents. The stark truth is that unless something is done fast, people retiring in future will be worse off than their parents.

This is where I'd like to fly my own Budget kite. It's not a cure-all but could help rescue some of the sandwich generation from their financial pickle. At present, more than half of the money paid in pension contributions tax relief goes to a small number of higher-rate taxpayers. But the people who really need this money are those on low and middle incomes. However, in April, the 2p cut in basic-rate income tax, announced last year, will see their pension relief actually fall. If we had a flat rate of tax relief – with the break for high earners falling but going up for basic-rate taxpayers – those on lower incomes would get far more bang for their buck.

In response, the Government says higher-rate relief helps persuade senior managers of the benefits of pensions for themselves and their staff. In other words, derail the managers' gravy train and they will kill off workplace schemes. This is a limp excuse and because of it, my kite won't fly. I'm afraid, the pensions job is a long, long way from being done.

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