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Verity&#39s view

There has never been a shortage of critics of Government pension policy and, pensions being so complicated, difficult and expensive, there is rarely a shortage of valid criticisms. But lately, the Government&#39s critics have been growing in number and confidence.

To the most strident of them, the Government&#39s pension policy is not just wrong-headed. It is falling apart.

There are two wings of pension policy: the first is for pensioners drawing their pension and the second is for those who are saving for a pension.

To take the first part first: to many eyes, the state pension arrangements look a mess. The Government&#39s decision to avoid upgrading the basic state pension in line with earnings was based on seemingly flawless logic. It was an ineffective way of targeting the poorest pensioners and would give away taxpayers&#39 billions to wealthy pensioners who did not need the money.

But too little trouble was taken to consider the drawbacks of the alternatives. Targeted support for the poorest meant means tests. We were assured this would not be income support because, well, the claim form would be simpler. Turns out it is not really and this is income support by another name, except at a higher rate.

The Treasury initially dismissed warnings that the Mig would create a huge disincentive to save. But then it was recognised that the more it was used to relieve the poorest pensioners, the more dependent they would become.

For pensioners who saved not a great deal but only a little – less than the Mig – their money would effectively be wasted, with a 100 per cent effective rate of marginal tax on private pensions.

So, the pension credit was invented and at last that bill is trundling through Parliament. It will have the effect of reducing that effective marginal rate of 100 per cent to something closer to 40 per cent. But only at the price of hideous complexity.

The pension credit sits very uneasily with two other planks of Government policy. First, Alistair Darling&#39s plan to give everyone a single pension statement telling them what to expect at retirement. A seemingly modest ambition. But this is pensions, where modest ambitions start to look Herculean when translated from theory to practical reality.

Not only will the pension credit complicate the statement&#39s arithmetic, it will also necessitate some sort of projected rate of return for definedcontribution pensions.

If the Government does what it insists IFAs should do and uses a cautious projection, the tiny levels of projected pensions will cause a political storm.

Meanwhile on the other side of policy – encouraging private saving – the picture is little better. While premium income to life insurers from pensions is up, the stakeholder figures are looking dire.

True, life insurers may have persuaded most employers to “assign” a stakeholder pension. But the take-up of the schemes by individual employees is, on all available figures, puny.

In many cases, it is inflated by people simply switching from former group money-purchase schemes to new stakeholder schemes.

But most ominous is the number of employers who are preparing to abandon finalsalary schemes – not just for new staff but for existing workers, too. The combination, in this order, of poor stockmarket returns, the limited price indexation of benefits, the new accounting standard FRS17 and the withdrawal of dividend tax credits have made final -salary schemes an expensive headache for employers.

Unwilling to take on the risks of retirement planning, they are palming it off to a group less well equipped to cope – employees.

The rumours are that Gordon Brown and Alistair Dar-ling may be recognising their pension policy is not working and are preparing a shake-up of policy. No doubt they will call it radical. This time it will need to be.

Andrew Verity is personal finance correspondent at the BBC


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