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Green for go

Pensions have occupied the minds of many people this year, all coming from various angles and with different perspectives but with a common goal in mind – to make sure that more people have a decent income in retirement and will not have to face a retirement in poverty. But how do we get there?

Hard on the heels of the Sandler Review in July came Alan Pickering&#39s review -A Simpler Way to Better Pensions.

We are now all waiting for the next – and in many respects, the most important – stage, which will be the results of the Inland Revenue review on tax simplification.

In fact, we may not actually see these results. We may only hear about them in the pre-Budget statement ahead of the Green Paper which is to published some time before the end of the year. The Green Paper is expected to build upon the pension proposals in the Sandler review, the Pickering review and the Revenue&#39s review.

Opportunity for All, the fourth annual poverty report issued recently, gives us some insight into what may be included. The report contains proposals to build upon the current strategies designed to meet the Government&#39s objective of raising the proportion of retirement income, from non-state sources, to 60 per cent by encouraging “more saving for retirement by more people”.

Persuading people to make contributions to pens-ion schemes is not easy or straightforward. Research has shown that where there is an employer contribution to a pension scheme, membership take-up and member contributions are each usually much higher than when there is not employer contribution. Encouraging employers to set up and contribute to pension schemes is a key issue.

One way to do this is to build further incentives into the system to provide greater encouragement to employers. A number of proposals have been put forward on how to achieve this but a lot will depend on what the Revenue and, ultimately, the Treasury have to say.

We could see moves towards encouraging greater use of matching contributions. After all, that is what is happening in the new civil service stakeholder pension scheme from October

Adopting Pickering&#39s proposals for compulsory membership for all employer sponsored arrangements-such as GPPs or group stakeholder plans, and not just occupational pension schemes, subject to a minimum employer contribution would be one way to do it. But that raises some interesting issues.

There has been speculation about whether we will see moves to greater compulsion within the private pension system. Extending compulsion beyond the significant level that already exists within the state system has wider economic, social and political implications which would need to be addressed. Any proposals would need to answer the seemingly simple questions of “who?”, “how much?” and “into what?”.

Streamlining and simplifying the various different tax regimes which we have would make it easier for people to understand the choices open to them. It would also have the additional benefit of making it easier for employers to run pension schemes. We saw moves towards this in April 2001 with the new DC regime but there is certainly scope to develop this further.

Rumours abound at present about the continued availability of the tax-free lump sum cash benefit. Will it be removed? Will the amount payable be capped at a monetary limit? What about rights already built up?

It is interesting to see how widely-based the “anti” lobby is – well beyond the “vested interests” of the pension industry.

Flexibility, particularly increased flexibility at retirement, is expected to figure largely in the Green Paper. Hopefully, this will clarify the Government&#39s position on annuities and how income can be taken from pension schemes.

As the ratio of pensioners to workers falls, the Government is seeking to find ways to encourage people to remain in the workforce and “economically active”.

From a purely pension perspective, this could involve changes making it possible for individuals to continue working for the same employer, before or after retirement, say on a part-time or reduced hours&#39 basis without it affecting their pension benefits.

Another option would be to raise the age range during which benefits can be taken from 50-75 up to perhaps 55-80.

Cast your minds back a few years to a DSS report, Winning the Generation Game.

The really obvious area to look at here is state pension age. Will they, won&#39t they? The well argued paper from the Pensions Policy Institute highlights many of the key issues in this area.

The Green Paper is also likely to include proposals to enable people to make more informed choices and decisions about their pension savings by giving access to more focused information.

We know from the spending review for 2003/06 that combined pension forecasts will feature in the Green Paper. These are the statements which will give individuals information about all their pension benefits – from both the state and all private pension arrangements.

Currently a very limited number of individuals can get statements which combine benefits from the state as well as benefits from a single private pension.

Although we do not know exactly when it is coming or what it is going to say, one thing is certain. It has to deliver change. Without that, we will be no further forward.

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