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A CONSUMER&#39S VIEW

Will the Government make stakeholder pensions compulsory? That is the big question on the minds of all associated with the pension industry.

One thing is certain. If stakeholders do become compulsory, it will not be until after Labour has won the next election.

There are many in the pension industry who think compulsion is inevitable and only a matter of time.

And if Gordon Brown understands the consequences of his policy on income support in retirement, and there is every indication that he does, then there is no alternative but to make pension provision compulsory.

Every time Brown raises the minimum income guarantee, as he has intimated that he will in the November pre-Budget statement, increasing Mig to £90 for a single person and by a proportionate amount for couples, he makes it less and less attractive for those on average earnings and below to save for retirement.

Industry experts believe Brown will remove the disincentive to save by compelling employers to contribute to a stakeholder pension.

This would be a popular move among employees as they would see it as an effective pay increase, albeit deferred pay.

Such a move would also have the added advantage that, so long as employees were not obliged to make stakeholder contributions, it would not be seen as effective taxation.

In addition, if employers were forced to contribute, say, 3 per cent of payroll to a stakeholder, it would make it worthwhile for employees to make their own voluntary contributions.

The percentage for emp-loyers&#39 contributions could be gradually increased over the years. This would eventually solve the problem that higher Social Security bene-fits make it unattractive to save for retirement.

More interesting is the long-term effects of making pension contributions compulsory. Once the Government has overcome the hurdle of making provision for retirement a compulsory obligation, why stop at pensions?

The Government has made it clear that it will, over time, pull back from the concept of universal social provision for all.

So, if you make pension contributions compulsory, why not make other forms of Social Security benefits, which are also currently financed by the Exchequer, subject to compulsory contributions or insurance?

Why not have compulsory life insurance for all employees, which could drastically reduce the cost of keeping single-parent families after the breadwinner has died? Most good employers already provide death-in-service benefit of three times gross salary for white-collar workers and this type of term cover costs peanuts.

Provided employers were given warning of its introduction and could budget for the extra cost, the strain on profit margins would be minimal.

The Government has already made its attitude towards mortgage payment protection plain. Lenders must encourage homebuyers to buy insurance which will cover their mortgage repayments and preferably other household outgoings during the time before they become eligible for Social Security benefits.

Why not simply incorporate it as a standard facility in the interest charge?

The argument against compulsion of any kind is that it takes away individual freedom and is simply seen as taxation. But nobody seems to worry about that when it comes to compulsory third-party motor insurance. This is generally perceived to be a good thing – even if a significant minority still ignore the law. Nor is there anyone clamouring for tax relief on car insurance premiums.

Moreover, compulsion spreads the “tax” burden more evenly and more fairly. At the moment, the responsible majority pay, in taxes and Social Security contributions, for a substantial proportion of the minority who are not nec-essarily lower paid but simply feckless.

What this really means is privatisation of the National Insurance fund over a period of time. Abolition of NI makes sense anyway since, if an individual does not qualify for contributory benefits, they are usually eligible for non-contributory benefits like income support and hous-ing benefit which between them cost the Exchequer over £20bn a year.

It&#39s time individuals took care of themselves rather than expecting the state to do so.

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