The Government billed their Pensions Green Paper "Simplicity, Security and Choice: Working and saving for retirement", as one of the biggest shake-ups in the UK pension system for years. In the event, it proved something of an anti-climax.
Despite calls from many quarters to raise the state retirement age, the Government has decided that this not a tactic that would get to the core of the pension problem. Raising the retirement age would only serve to penalise people on low incomes, it argued. Instead, the Government proposes to allow the deferment of pension in return for higher weekly payments or a lump sum:
"People who choose to defer taking their State Pension for five years or longer could see a 50 per cent increase in their weekly payment. It also considers whether pensioners could take a lump sum instead of the enhanced deferred pension," said the Department of Work and Pensions.
Andrew Brown, assistant director-general of The Chartered Institute of Personnel and Development (CIPD), supported this decision. Calls to raise the retirement age reflect a "purely financially-oriented calculation, which takes no account of real employee's situations or wishes," he said.
A simpler tax regime is also on the agenda. Proposals include introducing a single, lifetime limit on the amount of tax-privileged pension saving - with a lifetime ceiling of around £1.4 million and an annual limit of £200,000 - a move that pleased employers groups.
"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," said John Cridland, deputy director-general of the Confederation of British Industry .
Also outlined are a new pensions advice line, and an improved web-based retirement planner "to give individuals clear information tailored to their own circumstances so they can see how the choices they face relate back to their own retirement prospects". It also suggests allowing schemes to make pension membership a condition of employment, which it believes "will encourage pensions information being added to pay slips and recruitment material."
The Green Paper also claims that legislation against age discrimination expected in 2006, the ending of compulsory retirement ages - except where there is justification - and raising the normal pension age in the public sector for all new entrants to 65, will also ease any pensions concerns.
While welcoming this move, the Employers Forum on Age (EFA) warned that the Government’s plan to end compulsory retirement ages needed to be communicated more effectively to employers in case they were worried they would be forced to retain employees purely on the basis of age.
According to EFA head, Sam Mercer, "it is about stopping the enforced exit of individuals from the workplace for no other reason than their age, but employers are going to need clear guidance as to the circumstances under which they can retire people."
While many unions are unhappy as to the lack of compulsion on the part of employers' contributions, Bill Morris, head of the Transport and General Workers Union, was paticularly scathing. He attacked the proposals as a "masterpiece of complacency" that only demonstrated the Government’s lack of understanding.
"They either accept their obligations now, and build a retirement regime of confidence and security or they pick up the social cheque for the abject poverty in retirement that the next generation will face," he said. "There is a crisis in pensions which requires radical solutions; not to have compulsion is a missed opportunity."
Instead of the compulsion demanded by the unions, the Government says it will work with the FSA and financial services industry to "intensify saving education" including introducing workplace packs and promoting total benefit statements in the workplace to raise awareness of both employers' and employees' contributions. But whether state-sponsored education initiatives will do anything to increase savers' trust in a financial services industry repeatedly embroilled in misselling scandals must be highly doubtful.
"All the partners in the pensions partnership - Government, employers, employees and financial services - must rise to the challenge of strengthening the voluntarist approach,’ said Andrew Smith Minister for Work and Pensions.
But the Work Foundation accused the Government of "tinkering with the detail" without addressing any fundamental problems. "Its notion of a responsible partnership between Government, employers and people is to wash its hands of the great shift of risk by Government and employers onto individuals," it said.
Mary Francis, Director General of the ABI (Association of British Insurers), was also cautious. "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," she said.
"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."