Thompsons seminar on Government pensions proposals
There are approximately 35 million people of working age in Britain. Approximately 10.5 million are members of occupational pension schemes, and another 10 million have purchased personal pensions.
The remainder have made no provision for the future of their own, but of those, about 7 million people are relying on the state earnings related pension scheme thinking that this will provide them with an adequate income in retirement. The consequences are stark: the poorest 20% of single pensioners receive an average income of £68 per week, the richest fifth receive an average weekly income of £205. This gap between the richest and poorest, is growing.
This is the problem which the government is seeking to address in its proposals for reform of the state pension scheme, and which the Secretary of State addressed at a recent seminar organised by Thompsons.
There are three principal elements to the government's proposals. First, all pensioners will receive a guaranteed, minimum income of at least £75 a week for single pensioners and £116.60 for couples. This minimum income guarantee came into effect from April 1999.
Second, the Government will introduce a new "second state pension" to replace the state earnings related pension. This will not affect those who are earning more than about £18,500 per annum; it will be substantially higher than the current SERPS provision for those who are now covered by the SERPS scheme, providing twice as much for a person earning £9,000 per annum. Like the SERPS scheme however, it will not apply to anyone earning less than the lower earnings limit (currently £3,300 per annum).
The cornerstone of the Government's proposals are so called stakeholder pension schemes. These are aimed primarily at those who are earning between £9,000 and £18,500 per annum, and will gradually replace the state second pension.
They would be administered by trustee bodies, like current occupational pension schemes, but they will not be limited to one employer. So an employee who leaves one job and starts another, will be able to remain in the same stakeholder pension. Benefits will be provided on a money purchase basis. It will not be compulsory to join one, and, in particular, it will not be compulsory for employers to make contributions on behalf of their employees.
Stakeholder pension schemes provide the greatest challenge to trade unions. Although they will not have to contribute towards them, every employer which does not offer an occupational pension scheme will have to make a stake holder scheme available to its employees.
The Government's express hope is that the schemes will be provided by "affinity organisations" including specifically, trade unions. Many trade unions are working on proposals for union stakeholder pension schemes and these were discussed at the seminar; it is clear, however, that questions of scale will have to be addressed. At the same time, care will have to be taken to ensure that employers do not offer stakeholder pension schemes and use that as an excuse to wind up decent occupational pension schemes.