Government hints at willingness to scrap Serps

The Government yesterday gave the strongest signal yet that it was willing to consider phasing out the State Earnings Related Pensions Scheme for new entrants to the labour market.

John Denham, pensions minister at the DSS, yesterday made it clear that the Government was considering phasing out Serps for new workers as part of a raft of pension reforms to be unveiled early next year.

Speaking at a London conference on pension schemes, Mr Denham repeatedly declined to commit Labour to keeping Serps as an option for new workers, sticking closely to the manifesto formula: "Serps should be retained for those who wish to remain in it."

Asked whether this included new workers, Mr Denham said: "I think the manifesto commitment is clear enough."

The formula gives Labour enough political room to phase out Serps over the long term without breaking its manifesto promises. The formula only applies to workers already contributing to Serps through national insurance payments and does not cover future workers.

If the Government goes ahead with the reform, new workers would still accrue the pounds 61.50-a-week basic state pension. But they would have no alternative but to join a private scheme for their second-tier pension.

A proposal to phase out Serps would echo a pre-election proposal by the Conservatives to shift Serps and the basic state pension into private, funded schemes.

Private providers are pressing for Serps to be phased out in favour of "stakeholder pensions", a new form of private sector scheme, details of which the Government will announce early next year. Privatising Serps for new workers is opposed by members of Labour's old guard who say it is better value than private schemes for people who change jobs frequently.

- Andrew Verity