1995 has seriously hurt your pension

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PENSIONS, along with train-spotting and butter mountains, are topics guaranteed to create a huge empty space around anyone unfortunate enough to mention them at New Year's Eve parties.

Yet the past year has seen a succession of changes likely to have a huge impact on almost every person under 40 in Britain.

Among the most important reforms seen in 1995 were cuts in the State Earnings Related Pension Scheme (Serps) and the equalisation of pensions ages for both sexes at 65, beginning in about 15 years' time.

The changes mean that within the next 40 or 50 years, incomes paid by the Government to people at retirement may be half the already inadequate amounts received by today's pensioners.

The most important change this year was undoubtedly the Pensions Act. Introduced by the Government in the wake of the death of tycoon Robert Maxwell and the disappearance of up to pounds 450m from his media empire's pension funds, the Act is supposed to prevent similar events from happening again.

The measures, due to take effect in April 1997, mean members of schemes whose insolvent employers have stolen from the pension fund will have a call on a compensation scheme funded by the pensions industry.

The scheme will pay out up to 90 per cent of a loss arising from fraud or deliberate misappropriation.

Pension scheme trustees can be suspended, disqualified, fined or imprisoned if they do not carry out their duties properly. Schemes will have to have an auditor and an actuary who will be expected to report any wrongdoing to the pensions regulator.

However, the Act also provides that, after April 1997, an employer whose scheme is opted out of Serps will no longer have to pay a similar guaranteed minimum pension (GMP).

Instead it must show it can pay a pension "broadly equivalent" to that under a GMP. But any pension rights earned after 1997 will not be fully indexed if inflation rises at more than 5 per cent a year, which will mean a gradual erosion of their value.

Women under 40 will have to work an extra five years for a state pension, while those aged 40-45 will have to wait between one and five years longer because the measure is being phased in from 2010.

Women also won the limited right to a share in their husband's pensions after a divorce. But calls for a "clean break settlement", whereby their former partner's pension would be divided up immediately, were spurned by the Government. Women will have to wait until he reaches retirement age before receiving their entitlement.

The net effect of the Pensions Act will be to place far greater pressure on individuals to provide for themselves by means of personal pensions or top-ups to their occupational schemes.

Many will be too cash-strapped to be able to set aside what they need. Even if they do, their funds will be subject to the vagaries of the world's stock markets rather than being guaranteed, as the Government scheme is today. For some this year's changes will mean a dramatic loss of income, even penury, in retirement.

It may not be worth while ruining tonight's party to discuss the issue, but if ever there was a suitable subject for a New Year's resolution, a pension is it.