Crackdown on early retirement

CHANCELLOR Gordon Brown is to unveil radical measures aimed at discouraging early retirement as the Government struggles to stabilise the crisis-hit pensions and savings industry.

He is expected to launch a major reform package which will do away with tax breaks that encourage people to stop work before reaching retirement age.

Brown will also introduce other tax breaks to persuade people to save more money for old age.

The Treasury believes distortions in the current system are encouraging people to stop work long before they reach 65. One-third of men aged between 50 and 65 do not work.

In what will be the biggest pensions shakeup since the mid-Seventies, there will be sweeping changes to the rules governing both pensions and long-term savings plans, such as endowments and with-profits policies.

Along with new tax incentives to encourage long-term saving, the package is also likely to change the law to allow people to 'part-retire', drawing some of their pension while working part-time for the same firm. At the moment, an individual cannot continue to work for an employer and collect a pension from that company at the same time.

Businesses may also regain the right they lost in 1988 to compel employees to join the company scheme as a condition of service. The law governing annuities - the lifetime income plans that people must buy on retirement - is likely to be made more flexible.

One source close to the Treasury said: 'A headline-grabbing announcement will allow the Chancellor to be seen to be dealing with this.'

But the Chancellor will have to explain that families must save more - up to £1,000 a year.

Employers may lose the right to call ' pension holidays' when times are good - and may also face a demand to make minimum pension contributions on behalf of their employees.

The Association of British Insurers estimates an annual shortfall of £27 billion in the money that workers ought to save for retirement.

There are three official reviews of the savings and pensions industry under way. Former Lloyd's of London chairman Ron Sandler will next month report on savings in general. A review of pensions regulation is being conducted by Alan Pickering, former chairman of the National Association of Pension Funds. And the Inland Revenue is advising Ministers on possible reform of the tax treatment of pensions.