Mind the pensions gap

IT SHOULD be a cause for celebration that people are living longer and staying active for longer than ever before. But as retirement becomes a more and more important stage in our lives, it is vital that we prepare for it properly - and that the Government helps us to do that.

Today, Adair Turner's Commission publishes its interim report into the state of pension provision in the UK.

The Turner Commission was set up two years ago, in part to make it look like the Government was doing something on pensions, although the policy paper it published at the time was typical of this Government - a lot of talk but very little in the way of action.

The report is expected to highlight an enormous gap between how much we are in fact saving in our pensions and how much we need to save if we are to enjoy a secure and comfortable retirement.

This savings gap is only the most vivid illustration of a pensions crisis that threatens to leave millions of people without the financial independence that is essential if we are to look forward to retirement with confidence.

Some 10,300 pension schemes have started winding up in the past seven years. At least 65,000 people have lost 20% or more of their pension savings after the companies they worked for went bust without enough money in their pension funds to pay the benefits that had been promised.

Few young people starting their careers today have the security of a pension which, because it is linked to their salary, protects them from the risk of fluctuating stock market performance. The proportion of household income being saved has fallen from 9.4% in 1997 to 5.5% last year, and the proportion of recently retired pensioners with an income from an occupational pension has been falling too.

No one would say that every aspect of the pensions crisis is entirely the fault of the Government - although I agree with Labour MP Frank Field, an acknowledged expert in this area, who said recently that 'when Labour came to office we had one of the strongest pension provisions in Europe and now probably we have some of the weakest.'

But two vital policy mistakes can be laid at their door.

One of Gordon Brown's earliest stealth taxes was a £5bn a year tax on pension funds - money he is still taking from them today. At the time, he argued that this was something he could get away with because 'many pension funds are in substantial surplus'.

Today, Britain's biggest 100 companies alone are estimated to have deficits in their pension funds totalling £42bn. You don't need the benefit of hindsight to realise that taking billions of pounds out of pension funds every year is not going to help persuade companies to keep their pension schemes open.

THE second mistake is the Government's decision to deliver extra help for today's pensioners not through the basic state pension but through increasingly complicated means-tested benefits. When younger generations see their parents and grandparents being punished for saving, it is hardly surprising that they ask why they should bother to save themselves.

Labour say this is a price worth paying for helping the poorest pensioners. But the truth is, they're not even doing that. The poorest pensioners today are those who are entitled to means-tested benefits but who don't claim them - either because they don't know about them, or because they find the process of claiming them too complicated, or because they find means-testing an affront to their dignity. There are 1.7m pensioners who are entitled to the Pension Credit but do not receive it.

There is a pressing need for action on the pensions crisis. Yesterday, my party set out an imaginative plan for tackling it. Sadly, there is no silver bullet that will put everything right overnight. Instead, what we need is a coherent package of measures which, taken together, could restore Britain's saving culture.

First, we need to reform state benefits in a way that reduces penalties for saving. Yesterday, Tony Blair said he wanted to see a consensus about the way forward on pensions. What he didn't say was that there is already a consensus to which everyone but the Government now subscribes.

Whether you talk to businesses or trade unions, insurance companies or pensioners' groups, everyone now agrees that we need to reverse the spread of means-tested benefits by increasing the basic state pension.

According to some reports, pensions policy is to become the latest battle in the perpetual feuding between Blair and Brown. Tomorrow's pensioners have become the latest pawns in the open warfare that continues to divide and paralyse the Government.

I believe that we should increase the basic state pension in line with earnings, not prices. After four years, that would mean an extra £7 a week for single pensioners and £11 a week for couples, over and above increases in line with inflation. By the end of our first term in office, it would mean floating 1m pensioners free of means-tested benefits - sending out a clear signal that it pays to save.

Second, we need better incentives for saving. Not everyone understands the incentives that already exist, so Conservatives are consulting on a new Lifetime Savings Account based on the straightforward principle of 'buy one, get one free'. As people put their own money into these accounts, the Government would put money in too.

One of the most common grievances expressed by older people who have saved for retirement is that, once they reach the age of 75, they must use their savings to buy an annuity - an annual stream of income - regardless of whether they think that represents a good deal. Conservatives would change that rule too.

FINALLY, we must strengthen company pension schemes. Many people who could join a company pension scheme either haven't got round to doing so or don't know how advantageous it is.

So we would encourage companies to assume that employees want to join their pension scheme unless they actively opt out, and we would relax the rules that prevent companies who do provide decent pension schemes from promoting them to their employees.

We would align the interests of senior executives and their staff by removing the limit on the amount of money that bosses can have in their pension funds on the condition that every employee of the firm has access to the scheme on similar terms.

And we would use the unclaimed assets of banks and building societies to replenish the pension funds of people who have lost their savings through no fault of their own.

The Turner Commission's report will provide a valuable analysis of how bad the pensions crisis has become. What we need now is a Government that is instinctively on the side of the saver and which would take the action needed to help people prepare for retirement.

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