News: Blunkett seeks to stop Britons living for the day

Higher pay for graduates; policy forms under scrutiny; current account war; borrowing boost; pensions 'lifeboat' hits trouble
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The Independent Online

The Work and Pensions Secretary, David Blunkett, wants all employees to have to "opt out of", instead of into, pension schemes when joining a new company.

The move towards a soft form of compulsory saving would boost saving for retirement, said Mr Blunkett in a speech to the left-leaning Fabian Society think-tank last week.

He urged companies to look at this option, citing research showing that pension plan take-up was 30 per cent higher with "opt-out" schemes.

Mr Blunkett also wants to reform the current state pension to make it fairer to women. For many years, they have been penalised for taking time out from careers to have children, because of the subsequent reduction in their national insurance contributions.

Mr Blunkett is planning a conference on women and retirement in the early autumn.

The timing of the minister's remarks about pensions has raised eyebrows, since they come well ahead of a report to be made by Adair Turner, chairman of the Pensions Commission, in October.

Mr Turner has been charged with finding a solution to the UK's long-term savings crisis, and is likely to say that there is no "magic bullet". Instead, he is expected to call for a range of measures, including a higher retirement age, higher taxation and some degree of compulsory saving.

But Mr Blunkett's decision to speak out, rather than wait for the commission's conclusions, has led to suggestions that he is trying to sideline the report and hasten a move towards compulsory pension contributions.

Degrees of success

Graduate starting salaries are growing 3 per cent faster than national average salaries, according to a new report.

The average post-degree pay for those joining a specific graduate trainee scheme rose by 15 per cent between summer 2000 and 2005 to reach £19,825, a study from the Hay Group management consultancy has found.

This compares with national average wage inflation during the same period of 12 per cent.

Hay Group also discovered that the gap between graduates' starting salaries in the private and public sector had narrowed to just 1 per cent.

Separately, the Association of Graduate Recruiters has reported that a rise in demand for graduates among employers is helping to boost starting salaries. The cream of the class of 2005 entering well-paid industries can expect to earn well above the UK's national average salary of £22,248 (based on figures from the Office for National Statistics). For example, a graduate trainee in an investment bank will now start on around £35,000.

Insurance revamp

Application forms for critical illness cover and income protection policies are to be revised to help consumers understand exactly what they are buying.

An industry consultation process looking at the forms has been launched by the Association of British Insurers (ABI). It wants customers who buy this type of insurance to be fully aware of the policy's terms and exclusions, and of the need to disclose any pre-existing medical conditions.

"Where claims are turned down, it is often due to one of these factors," said Richard Walsh, the ABI's head of health and protection insurance.

The consultation comes after recent reports from the Financial Ombudsman Service, which investigated disputes between consumers and finance companies. The ombudsman called for greater transparency for consumers who buy these compli-cated products.

Insurer Standard Life recently broke with tradition by revealing details of rejected policy claims. One in five of its critical illness claims (88 out of 442 made in the 12 months to 15 November 2004) were turned down, it said. In nearly six out of 10 cases, this was because the illness did not exactly meet the conditions of the policy.

But a third of claims were rejected because the individual had failed to disclose vital medical information beforehand.

The ABI's drive for clarity is not being extended to application forms for credit cards, personal loans or mortgage payment protection insurance, since these products are sold largely by banks, building societies and lenders, a spokesman said.

Responses from industry and consumer groups to its review of health and protection insurance forms must be in by the end of September, when the ABI will issue new guidelines.

Barclays' new drive

The turf war between UK banks trying to woo current account customers is hotting up. Last week, Barclays pitched into the fray by revamping an old fee-charging account and giving it away free for 10 months.

The bank's Additions Plus "packaged" account normally costs customers £12 a month for perks including travel insurance, breakdown cover and commission-free currency. New Additions Plus customers will get a free overdraft of up to £5,000, a fee-free deal for 10 months and a Barclaycard with 0 per cent interest for the same period. There is no tie-in and you can leave after the offer period ends.

But caveats apply: your credit reference must be healthy and you need to deposit £1,000 in the account each month.

In the past few weeks, high-street banks have been slugging it out to attract new customers who, they hope, will buy other - more lucrative - products.

HSBC has introduced a "price promise" with its current account - refunding the difference should customers buy any product and find the same goods elsewhere on the high street for less. The Halifax is offering 1 per cent cashback to users of its debit card.

Rates heading down

Fresh economic data on unemployment has convinced analysts that the Bank of England base rate will be cut next month.

Figures showing headline inflation at 2 per cent - its highest since 1998 - had suggested that rates would have to stay on hold, or even rise, to stop prices rising further.

But then the number of people out of work and claiming unemployment benefit edged up by 8,800 in June. This marked the fifth monthly rise in a row and the longest upward run since the UK was in recession in the early 1990s.

Unemployment causes a slowdown in consumer spending, making a rate cut more likely, analysts said. Simon Rubinsohn, chief economist at fund manager Gerrard, called the latest jobless figures a "turning point in the labour market".

The Bank of England's Inflation Report in May predicted a rise in the cost of living over the next six months or so, before dropping again next year.

Final salary shock

The cost of the Pension Protection Fund (PPF), a lifeboat for employees' final salary pensions if their firm goes bust, is expected to be well over the original £300m estimate.

PPF chairman Lawrence Churchill conceded that the cost to companies would rise above £300m because the Government had used out-of-date funding assumptions.

The extra cost will place a heavy financial burden on companies. It is expected to hit investment, staff pay and benefits.

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