Smith unveils his pensions crisis package

19 Dec 02
New Labour's suggested shake-up of the UK pension system, dubbed the 'work until you drop' package, is merely storing up problems for the future, according to public sector experts, opposition parties and trade unionists.

20 December 2002

Pensions Secretary Andrew Smith unveiled his green paper – Simplicity, security and choice: working and saving for retirement – on December 17. It suggests an extension of the fixed age of retirement from 65 to 70 on a voluntary basis, to stave off what some experts claim is a £27bn shortfall in occupational pensions that could mean 13 million workers retiring into poverty.

In a concession to trade unions, and much to the annoyance of the Confederation of British Industry, Smith also left the door ajar for compulsory contributions for both employers and employees. He promised to establish an independent commission 'to monitor progress and ask whether we need to go beyond the voluntarist approach'.

Smith also proposed an extension of the retirement age for all new entrants to the public service from 60 to 65, a 'golden handshake' £20,000 lump sum payment incentive to work until 70 and a tax simplification package. He warned Parliament: 'If [people] want to see continuing rising standards of living in retirement, they either have to save more, work longer, or do a mixture of both.'

The Trades Union Congress attacked Smith's proposals as 'an awkward halfway house that offsets some immediate concerns but stores up problems for the future.'

Michelle Smith, TUC pensions officer, added: 'Compulsion is the only real solution to this crisis.'

Unison general secretary Dave Prentis claimed the extension of the retirement age across the public sector was pointless because many employees are 'kicked out' before they are 60. 'If they can't draw on their [occupational] pension until they are 65, these proposals force them into poverty for longer,' he said.

Mike Woodall, chief pensions officer at the West Midlands Pension Fund, part of the Local Government Pension Scheme, said the public sector could also suffer from Smith's suggestion that future early retirements could be accompanied by an actuarial revaluation.

'That would be a real blow… retirement on a fully funded pension at 60 has long been a positive recruitment and retention tool in parts of the sector,' he said.

David Willetts, shadow pension secretary, claimed Smith's proposals were 'modest measures that were over-hyped'.


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