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I have a dream…

A journalist recently asked me what I would do if I were in charge of Government pension policy. This is, of course, a lot more difficult than just telling the Government what it is doing wrong.

Perhaps it is easiest to start by saying what I would not (or could not) change. The Government is not responsible for the poor investment returns over the last couple of years. Indeed, the UK economy seems to be withstanding the worldwide economic downturn better than most. The Government can only hope, like the rest of us, that stockmarkets will start to recover soon.

Increasing longevity is a significant ingredient towards more expensive pensions but any policy to reverse this is likely to prove a little unpopular with the electorate.

Accounting standard FRS17 is something I agree with in principle but a degree of smoothing in the outcome would not go amiss. However, this is the domain of the Accounting Standards Board, which is independent of the Government.

The Chancellor&#39s £5bn-a-year tax raid in his first Budget is a candidate for reversal but is this a realistic prospect? There are two prime reasons to doubt it. First, where is the Chancellor going to find an extra £5bn a year from other sources? Second, do not forget that the abolition of advance corporation tax dividend relief was part of a wider package of company tax reform so any reversal would be bound to have significant consequences for taxation of companies.

Some people suggest an increase in the level of pension compulsion. That is possible but, again, is it realistic? In the short term, I have my doubts. Increased compulsion is likely to be viewed as increased taxation, regardless of the degree to which it is disguised by levying it on the employer rather than directly on the individual.

Incidentally, where does that leave a self-employed person who is both employer and employee? So, increased compulsion would be a major political risk, to add to the increase in National Insurance contributions for the NHS and a possible referendum on the euro. Chancellor Gordon Brown may be reluctant to take such multiple risks until, at the earliest, he has changed the last digit in his street number.

Clearly, the Government is pinning high hopes on the series of reviews from Alan Pickering, the Inland Revenue, Sandler and Tiner, to name but four. If all goes to plan, these will help to introduce clarity and reduce complexity in the pension market. But will this be enough to stem the negative tide for funded private pension provision?

I see five areas where the Government really could nail its colours to the mast in a positive way, namely:

l Improved contracting-out terms.

l Allowing employers to make membership of their

pension plan a condition of employment.

l Encouraging employer pension contributions through differential National Insurance contributions.

l Phasing out state pension credit for people a long way from retirement.

l Raising the stakeholder charge cap.

Better contracting-out terms could stop the drift back into the state, which is the opposite of Government policy.

Allowing employers to make scheme membership a condition of employment would raise the take-up rates for employers who really do want to do the best thing for their employees.

Differential employer National Insurance contributions could be used to reward employers who make decent pension contributions at the expense of those who do not.

Phasing out state pension credit for people a long way from retirement, leaving only a simple means-tested safety net, would send a clear message that people who can afford to save for their retirement would be well advised to do so.

Finally, raising the stakeholder charge cap would allow more to be spent on reaching the Government&#39s target group. Competition will ensure that more lucrative business does not suffer higher prices.


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