Pensions: Frank's field of dreams

The 'stakeholder pension' is coming but in the meantime, as we discuss here and on pages 18 to 19, there are other ways to plan ahead

AFTER much waiting the Government has announced that Frank Field, the Minister of State for Social Security who was mandated to "think the unthinkable", will publish his Green Paper on Thursday next week. The package will include proposals to change the way we save for pensions.

So in just a few years, if the Government has its way, we will all be able to contribute to our own "stakeholder" pension, one of its favourite catchphrases.

The stakeholder pension is the Government's big idea for pension provision. In part it is a reaction to the Tory idea of personal pensions and the widespread mis-selling of these products in the late 1980s and early 1990s. It is also Labour's first attempt to try to encourage more people to provide for their own retirement and so reduce the burden on the welfare state.

The stakeholder pension will be aimed at those with lower or intermittent earnings, particularly women who have children, and those who change their jobs frequently. In short, it is aimed at those people for whom a personal pension is not a viable option, mainly because of the cost and their relative inflexibility.

Although they were first talked of in Labour's election manifesto in early 1997, we still know little about the exact shape that stakeholder pensions will eventually take. Until the Green Paper appears, and despite all the rhetoric, we have seen only one document from the Government on this important issue, a consultative document published in November by John Denham, a junior minister in the Department of Social Security.

Launching the document, Mr Denham promised that stakeholder pensions would prove the answer for those who are failed by the current system.

He said: "They need security, and to be able to understand exactly what they are buying and why. They need to know that, whatever way their career may take, their pension will be flexible enough to secure their retirement."

The paper set out in general terms how the stakeholder pension should operate, but offered few specific answers. It did, however, offer an insight into the way the Government's thinking might develop when more concrete proposals are unveiled.

The Government believes it has identified many possible takers, including industries such as agriculture and engineering, which do not have well developed occupational schemes. The self-employed would also have access to such a scheme, so that temporary employees could contribute as part of their overall salary package. Alternatively, it might be a scheme based around a particular region.

The Government also makes it clear that it expects any stakeholder pension to be much simpler and cheaper than a personal pension.

Simplicity, security, flexibility and value for money are the main buzzwords used by Mr Denham, who has long argued that personal pensions are not suited to the flexible work patterns many people have.

To help achieve its aims, the Government is also proposing to introduce kite-marking through which individual schemes will be government-approved. Only those that fit the Government's criteria will be awarded a kite mark.

One key area that Mr Denham's paper did not address, however, is whether people should be forced to contribute to a second pension. Many in the pensions industry argue that the only way that stakeholder pensions can be made into a success is if they are made compulsory, otherwise the take- up will be too small. Many in government privately agree and Mr Field may cover this ground in his Green Paper proposals.

Most pension providers, as well as a large number of consumer organisations who responded to Mr Denham's document, argued that compulsion was essential for the scheme to be a success. The Government is understandably nervous about the issue of compulsion. Most of us are all in favour of the future until it hits our pockets today.

Until the Green Paper appears, it is unclear who will run the scheme. The traditional pensions industry is still in the doghouse because of the personal pension mis-selling scandal. The Government has already threatened to bar companies that have been slow in providing compensation to mis- selling victims. But it is these companies that have most of the expertise and the resources to make stakeholder pensions work. The Government could, however, look to friendly societies and investment companies to provide the backbone for the scheme.

However, even after publication of Mr Field's Green Paper, there will then be a lengthy consultation process. So it is likely to be at least year before we know exactly what the final details of a stakeholder pension will look like, and a few more years after that before we can actually invest in them.

q Tony Bonsignore writes for 'Financial Adviser' magazine.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific