The UK government has finally published its long awaited green paper on pensions reform, with prime minister Tony Blair heralding it as a push to responsibility for those who can save for pensions, and effective state security for those who cannot."
Included in the paper is a commitment to non means-tested safeguarding of the current UK basic retirement pension, presently around 10-11% of average earnings, as well as a new 'minimum income pensions guarantee' of £75 (Ecu105) (20% of average wages) per pensioner from April this year, which the government aims to raise in line with earnings.
A new state 'second pension' will also replace the existing State Earnings Related Pension Scheme (SERPS) with the intention of cutting the number of people relying on the minimum guarantee by offering rebates to em-ployees earning between £9-18,000 per annum, encouraging them to join new stakeholder pension schemes or existing occupational funds.
Stakeholder funds will allow members to pay in tax-relieved contributions of up to £3,600 a year, and enjoy untaxed investment income and capital gains. Taxation will occur upon payment , with a tax-free lump sum option available.
And the schemes will have to meet new government standards on charges: caps on rates and a ban on hidden fees; flexibility, to allow members to stop and re-start contributions and not lose out; and information, with annual reports showing pension values in clear terms.
The green paper also allows companies to make membership of an occupational scheme a condition of em-ployment, and proposals are being examined which would allow trustees to run personal pensions, allowing industry-wide pensions to cover em-ployees who become self-employed or transfer to an employer not in the same scheme.
Alistair Darling, UK social security secretary, says: "This radical new pensions contract ensures a better pensions saving incentive through the stakeholder arrangement for middle and high income earners, whilst giving dramatically greater pensions provision for people earning less than £9,000 a year, without the need for means testing."
The government also added that once stakeholder pensions became established, the state second pension would transfer to a flat rate, with the aim of prompting all mid and high earners to take out private funded schemes.
Donald Duval, head of research at Aon Consulting, says: "Fundamentally the incentives seem to be there to encourage personal pensions saving where possible and the regulation side of the stakeholder funds seems to be sound. On the basic state level the increase to 20% of average earnings is certainly a lot more than we have at present, although nowhere near the levels pursued in other European countries, but my overall reaction is positive thus far." Hugh Wheelan"