Harman: looking for fresh ideas on pensions

Harriet Harman explains her plans on the BBC's PM programme - Dur 3' 37"

Major Pensions Review Launched

The Government described it as the most far-reaching pensions review ever undertaken. It wants the basic state pension to stay, but hopes to create a second pension system to ensure that everyone has access to additional support in retirement.

The Social Security Secretary, Harriet Harman, said in a written reply to the Commons that "too many of our older citizens do not enjoy security in retirement". Currently the basic state pension is £62.45 a week or £3,247 a year.

The review will look into concerns of today's pensioners and develop plans for a second pension scheme over and above the basic state pension.

Pensioner's organisations, employers, workers, consumers and pension experts are among those to be included in the review process. They are expected to produce proposals by October 31, for further consultation in spring next year.

Ms Harman said she had invited Tom Ross of financial services specialist Alexander Clay to chair a group of experts looking into the current state of pension provisions. Mr Ross is vice-president of the National Association of Pension Funds.

The review will be a key plank of the Government's drive to modernise the welfare state. The review will need to establish what role the state should play in approving second pensions. Ministers have repeatedly stressed that companies will have to offer value-for-money, security and flexibility.

Ministers have hinted that they could exclude from the new second pensions market firms which fail to meet the Government's December 1998 deadline for the settling of compensation claims arising from the mis-selling of personal pensions in the 1980s.

Harman: Help Poorest Pensioners

Ms Harman said the Government's "first priority" was to help the poorest pensioners. There were a million pensioners below the income support level, she said.

Can she survive on £62.45 a week?

"We don't think the current framework is right," she told BBC Radio 4's Today programme. "Our first step is going to ensure that there is an opportunity for people who don't have a company pension to avoid the lottery and risk of insecurity of the private pension system with a good second-tier pension," she said.

"We do want to reform the system so that it encourages people to save for their own retirement," explained Ms Harman. Currently the system deters people, because you can have ten brochures from ten companies - you're taking a risk with any of them."

Ms Harman denied that the Budget measures meant the value of many people's pensions was cut. "That's not the case," she said. "The best way to deliver pensions, which is a long-term issue, is to ensure you have a strong economy. The way to ensure a strong economy is to have more investment.

Sharp Criticism from the Opposition

The Shadow Chancellor, Peter Lilley, told the BBC's World at One programme that the Government's plan was "entirely devoid of substance". The Conservatives have criticized the Government's policy on pensions since the Budget removed certain tax concession available for pension funds.

Mr Lilley said the Budget's removal of tax concessions on company dividends paid to pension funds was "a direct attack on funded pension provision, reducing the value of dividends arising on pension savings by 20%", he added.

"Now they've having to try and salvage the situation and the rumours are that, having made pensions less attractive, they know that fewer people will have them unless they make them compulsory and they're floating the idea of compulsory increased contributions to less attractive pension funds.

The Liberal Democrat's spokesman on Social Security, Steve Webb, said the review would be a "missed opportunity", unless it found extra money "for today's poorest pensioners".

However groups like Help the Aged and Age Concern welcomed the Government's review, calling it "long overdue" and describing it as a "21st century solution to the problem of saving for the future".

John Edmonds, the General Secretary of the GMB general union, called on the Government to ensure that compulsory employer contributions formed the bedrock of any second tier pension. He complained that while some employers took their responsibility seriously, many would "get away with providing little or no pension support for their staff".

The Office of Fair Trading has already called in a report for "radical changes" as it warned that problems with personal and company pension schemes were "widespread" and that they were failing to meet the needs of the public.