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Mixed bag of reaction to pensions green paper

The government announced long awaited plans for a major reform of pensions in a green paper yesterday. The main proposals were for reform in areas including:

• Promoting employment among older people: The State Pension age will remain 65, but people will have more choice in working longer. Compulsory retirement ages will end, except where there is justification.
• Informed choice for individuals: The Paper suggests a simple framework to help people understand their options.
• A simpler tax pensions framework: Under new rules, more than 99 per cent of the population will be able to save more in a pension.
• Pensions and the workplace: The plans would save employers up to £200m a year in pensions administration and make it easier for them to set up and run good pensions schemes. The Paper also considers schemes to make pension membership a condition of employment.
• Protection: The government is determined to ensure more protection for consumers.

The government will run consultation on the proposals until 28 March.

Work and Pensions Secretary Andrew Smith said that for most people pension planning is "an incomprehensible maze", but the new proposals will simplify the system and renew confidence in pensions.

Reaction to the green paper:

CBI
The Confederation of British Industry applauded the green paper and described it as "a useful first building block" for stabilising the pensions system.

John Cridland, CBI Deputy Director-General, praised proposals for simplifying pensions and said employers would be pleased about the streamlining of tax incentives.

On new tax incentives he said, "This looks promising. We must give more encouragement for employers to provide pensions and for employees to contribute. The government must grasp the nettle on this or risk failing to plug the savings gap."

On pension simplification he said, "The government has taken a swipe at the red tape that makes pensions so complicated. That will help more firms offer schemes."

On flexible retirement rules he said, "It is right to call time on these absurd rules, which discourage people from working longer. Until now people have been unable to receive a partial pension while working for the same employer, forcing many to seek work elsewhere.”

He added, "Firms will also be pleased that the government is not increasing the state retirement age but will look with care at proposals for ending compulsory retirement. Companies often want people to work past 65, but these arrangements must be in the interests of both employer and employee."

On new consultation rules over pension changes he said, "Let us be clear that firms want to consult staff fully before making changes to pensions. We will take a constructive look at these proposals to ensure they do not hinder prudent and necessary actions."

On compulsory contributions he said, "We are relieved that the government ruled out pension compulsion at this time. Compulsion could have cost business some £29 billion a year, threatening the viability of many firms and the jobs of many employees. But we are not convinced by plans for small firms to make financial advice available."

Amicus
The Amicus Group, which manages affordable homes and supported housing schemes, said the pensions green paper was a smokescreen.

Amicus welcomed some points mentioned in the green paper including the proposal to require employee consultation before employers' schemes are changed, and the flexible retirement age so employees have the choice to work past the age of 65 to help save money for retirement. Amicus also welcomed the decision not to raise the state pension age and the measures to simplify pension taxation.

“But,” said Amicus Joint General Secretary Roger Lyons, "the Government have failed to address the full magnitude of the crisis in this green paper and this will condemn millions of people to poverty in their old age. The real issue is that pensions are under attack by employers and not enough is being done to protect them."

He added, "The main point the Government should have addressed in this green paper is a requirement on employers to make a decent contribution to, their employees pensions. The decision to have a commission on compulsion ducks this vital issue."

Retired persons
“Shaken but not stirred.” Said the Association of Retired and Persons Over 50. The association thinks the government has made inroads into addressing the deepening pension crisis, but has not gone far enough. The scrapping of the compulsory retirement age of 65 years, now means a flexible decade of retirement, which has been long been championed by ARP/O50.

Don Steele, Director of Social Policy for ARP/050 said:

"We welcome this initiative as our policy has always been that employees should have the option of choosing their own retirement in the decade between 60 and 70."

"Deferring retirement for five years now means that future pensioners will be able to claim a lump sum of £20,000 at the age of 70 instead. But the problem of age-discrimination for older workers trying to remain in or re-enter the workplace shows no sign of diminishing and is unlikely to do so even with the introduction of the EU directive in 2006."

ARP/O50 is concerned that there is no mention of what they say are the central issues, which are:

• Abolition of means testing of the basic State Pension.
• The problem of annuity provision at times of low interest rates, removing the ability of future pensioners to predict their income in retirement.
• No real incentive for the younger generation to start adequately saving for their retirement.

London School of Economics
Ros Altmann, governor of the London School of Economics, gave the reform proposals set out in the government's pensions green paper just four marks out of ten.

She said in an interview yesterday, that while the paper had addressed the need to allow employees to work for longer, it would do little to encourage them to save more. She added that the green paper held out little hope for employees facing the closure of their company final salary pension schemes.

ABI
“A nudge, not a shove, in the right direction.” Said the Association of British Insurers responding to the green paper.

Mary Francis, Director General of the ABI (Association of British Insurers), said:

“The Government needed to breathe life into its pensions strategy. Today's proposals contain some useful elements but we doubt that they will fully bridge the savings gap.”

“The Government has said that those who can save should save. We agree. But people are either not saving at all, or not saving enough for a comfortable retirement. That is a massive problem.”

“The Pensions green paper proposes some welcome changes. A radically simpler tax regime and simpler pensions will undoubtedly help remove some of the barriers to saving; so too will ensuring that people know more about their need to save for retirement; and we are pleased that the Government has recognised the need for flexibility in retirement.”

“But these measures, welcome though they are, are not enough to get to the heart of the pensions crisis. They alone will not add money to people's pensions schemes. Over the next few months, as the government consults on the green paper, we will continue to call for positive measures that will actively encourage a greater level of saving. These must include the introduction of financial incentives to help more employers contribute to the pension schemes of their employees.”