The UK government has been accused of failing to address the fundamental causes of the UK’s pensions crisis as it unveiled its new Pensions Bill.
Measures in the Bill include ensuring that when firms are taken over the new owners are duty bound to fulfil pension promises made to workers, trimming the requirement on final salary pension schemes to raise incomes of retired members and the creation of an online retirement planning service to help individuals find out how much their state, private and occupational pensions are worth.
The Bill set out plans to persuade people to defer drawing their state pension. The Government will reward those who wait another five years with a lump sum of up to £30,000 or a £52 a week rise in their pension.
It also proposes a new pension regulator with a remit to examine under-funding, fraud and mal-administration.
But the main proposal, a plan to introduce a pensions protection fund to protect the eight million members of final salary company schemes if their employer goes bankrupt is particularly controversial.
The plan will force all companies operating a final salary pension scheme to pay a levy which will compensate workers if their scheme is wound up. The £300 million-a-year fund will guarantee that people who have already retired will receive 100 per cent of their pension while those still working will receive 90 per cent..
But experts have warned that fund could have the opposite effect to what is intended and encourage many under-funded schemes to close.
Under the government’s original plans, however, the levy was intended to be risk-based under which companies whose schemes were poorly-funded or at greater risk of going bust would have had to pay more than employers with well-funded schemes.
But such were the complexities of devising such a plan that a flat-rate levy has been introduced, leading critics to point out that the scheme effectively forces well-run companies to bail out the irresponsible.
Although the Department for Work and Pensions has said that it still plans to introduce the risk-based levy after two years, no plans have emerged as to exactly how it will work.
Pensions experts also warned that the Bill fails to address fundamental weaknesses in the UK pensions system in the longer term and still does not offer enough incentives to encourage people to save for their retirements.
Steve Webb MP, the Liberal Democrat work and pensions spokesman, said the pensions bill was "half baked". He said: "The pensions protection fund is an insurance scheme not based on risk. It's like asking a careful driver to pay the same as a boy racer. To ask all companies to pay the same punishes the good guys."
The Chairman of the National Association of Pension Funds, Terry Faulkner, was also scathing:
"Few could argue with the spirit of the measures proposed, particularly greater security for defined benefit pension scheme members, better information, a more flexible approach to scheme funding, and better regulation. In themselves these are all good things,” he said.
"But is there anything in today's Bill to simplify our archaic state pension system? Is there anything to encourage firms to offer decent pensions to their employees, or keep existing schemes open? Are there new incentives to encourage people to save? Is there any real long term vision, or a clear pension strategy to achieve that vision. Regrettably, the answer to all these questions is “No”.”