Work 'til you drop

Millions of employees are to be encouraged to work on after hitting 65 in a move to defuse Britain's pensions timebomb.

Ministers want to bring an end to the state retirement age which effectively throws people on the scrapheap, leaving too many at the mercy of the state pension with no access to earnings.

Work and Pensions Secretary Andrew Smith told MPs he wanted to bring in new measures to help people move towards flexible retirement - including allowing them to continue working while starting to draw their occupational pensions. And people who postpone taking their state pension for five years or more could get increases of 50 per cent in their weekly payments when they start to draw it.

The plans were announced as Mr Smith unveiled the Government's longawaited Green Paper on the pensions system. It aims to address a funding gap, between the amount saved and the payouts needed in future, which City experts put as high as £27 billion.

However the plans came under strong attack from critics at Westminster, in the unions and in the pensions industry who complained the Government was merely tinkering in the face of a massive crisis.

The Green Paper also included a surprise tax raid on huge pension pots built up by City fatcats. They would in future only be entitled to a tax-free pension pot of £1.4 million over their lifetime, with annual payments into the fund not exceeding £200,000. Anything above these levels would be subject to tax.

Mr Smith said the plan would allow 99 per cent of the population to save more in a pension, taking advantage of tax breaks. However the move was clearly targeted at the wealthy one per cent who have built up huge pensions funds, often in place of high pay rises.

Other measures that are being proposed in the Green paper include:

Simplification of the current eight separate tax regimes imposed on different pensions schemes;

Allowing employers to make pension scheme membership a condition of employment;

Making it compulsory for employees to be consulted before pension schemes are changed - a move aimed at protecting those hit by the scrapping of generous final-salary schemes;

A new independent commission to study whether the current voluntarybased approach should continue - or whether employees should be compelled to pay into a pension fund.

Keeping the state pension age at 65.

Mr Smith said the proposals would save employers £150million to £200million a year - though industry is certain to counter that Gordon Brown has already launched an annual £5 billion raid on dividends from pension funds.

Mr Smith said: "To most people pension planning is an incomprehensible maze. At least three million people are not saving enough for their retirement. We are determined to help more people carry on working until they are 65 and even beyond. At the moment a wealth of talent and experience in the workplace is lost as people stop working too early." He said the Green Paper proposed cracking down on age discrimination at work.

But critics said a three-way guerrilla war between the Work and Pensions Department, the Treasury and Downing Street had reduced today's Green Paper to little more than a shell. The GMB union said Mr Smith's failure to take effective action was "completely unacceptable". It vowed to fight company by company to protect retirement benefits.

Engineering union Amicus has already threatened strikes if BAE Systems closes its final-salary scheme. Today the union warned: "The main battleground for the future in terms of industrial relations is not going to be pay but pensions."

The Tories derided the plan for parttime working after retirement, claiming it had been around for years. The party's pensions spokesman, David Willetts, said the crisis now facing pensions was similar to the "perfect storm" in the film of the same name.

"Today's pensions crisis is a combination of labour market changes, improvements in longevity, the collapse of share prices, new accountancy standards and other factors," Mr Willetts said. "Not all are under the Government's control. But it is vital governments at least get right things they do control." Pensions Minister Ian McCartney said: "We are not tearing up the system and starting again."