A wish-list from the pension providers

Santa Claus Smith won't pluck much from his sack of proposals, the experts tell William Kay. But they say what could help is employers' 'buy one, get one free' deals

Andrew Smith, Secretary of State for Work and Pensions, must feel like Santa Claus this weekend, as the massed ranks of the pensions lobby have queued to sit on his knee and present him with their Christmas present wish-list ahead of Tuesday's Green Paper on pension reform.

While no one is being too unrealistic, recognising that proposals for root-and-branch change are about as likely as Santa joining Weight Watchers, every one has a pet wish or two they think Mr Smith should or will pluck out of his sack.

Leading the calls for simplification of the present system are Digby Jones, director general of the Confederation of British Industry, and Christine Farnish, chief executive of the National Association of Pension Funds. Ms Farnish said: "Next week's Green Paper is an opportunity to address the end- less complexity that faces occup- ational pensions.

"Thousands of employers continue to maintain high-quality pension schemes, but there is a real danger that as the cost of provision rises, the level of provision will fall. We hope the Government will produce proposals which lead to a simpler pensions landscape, and boost confidence and security in the system."

Sheila McKechnie, director of the Consumers' Association, said: "I don't think the Government realises the scope of the problem. They have been fiddling but something more radical is required. I think there will be some attempt to revitalise stakeholder pensions, which have been a flop, and a simplification of the tax system. I expect companies will not be allowed to let people about to retire lose out if their scheme is wound up, and those already receiving pensions continue to be protected.

"In terms of producing a half-way house between total dependence on the state and pure individual provision, there needs to be some system of pre-funding, but the problem is arriving at something which will suffice for those on middle incomes. The bottom 40 per cent will get state pensions and the top 20 per cent can take care of themselves. It's the 40 per cent in the middle that face the biggest problems of uncertainty and risk.

"The whole experience of the private pensions market is that individuals find it difficult to manage that risk, but insurance is about pooling risk. I don't think the private sector is fit to deal with the pension problem, but I also don't think we will see compulsory contributions in the Green Paper."

But Steve Leake, principal at the consultant Punter Southall & Co, wants a form of compulsion. He said: "The key debate centres on what the best strategy is to achieve an adequate universal basic pension. The two main options are raising national insurance pension contributions, or introducing a compulsory funded scheme that does not undermine the need for many workers to contribute to their own pension."

The Legal & General insurance group wants the Government to come up what it calls "an irresistible offer" to encourage people to be more realistic about the amount they save into their pension plan.

Andy Agar, Legal & General's director of pensions marketing, said: "It seems plain old basic tax relief is not enough to encourage many employees to start a pension under their own steam. But when an employer offers employees a matching contribution, often as much as 90 per cent of the workforce take up the offer. Buy one, get one free (or even buy one, get one half-price) works in our supermarkets and it would work for pensions.

"People should be aware that paying £20 or £30 per month into their pension is nowhere near enough. At this level they will be very disappointed when they do retire. We believe the minimum amount will depend on an individual's circumstances, but a target contribution of about £80 to £100 a month is more realistic, especially if automatic increases are built in for inflation."

Legal & General's pensions calculator shows that a 30-year-old man paying £80 a month over 30 years could receive a pension of only £52 a week in today's terms. But by adding automatic increases of 5 per cent per year to their initial £80, that pension could rise to nearly £80 a week.

Tom McPhail, pensions expert at the west country IFA Hargreaves Lansdown, does not expect much more than tinkering around the edges next week, but he has drawn up a list of the likeliest proposals.

These include reform of contribution limits and the ability to contract out, protection of contributors when a final-salary scheme is wound up, scrapping the rule which prevents people contributing simultaneously to a personal and an occupational scheme, and reintroduction of a requirement that employees must join a company scheme.

"This was abolished by the Conservatives in one of their liberal moods," Mr McPhail said. "But the trouble is that it has meant that scheme membership is tilted to older people. By forcing younger employees to join, these schemes become more balanced."

He also thought there was an evens chance that pension rights will be established for people who leave a job after a brief period. Until now, they have been left empty-handed by rules requiring a two-year qualifying period to join an occupational scheme. Another of his tips is an insurance fund to protect final-salary schemes.

Mike Pomery, pensions consultant with Hewitt Bacon & Woodrow, said: "Over the past year, people have become far more aware of the extent of the problems that may face them in providing for retirement and there is an increasing demand for positive action. Lack of confidence in the present system is eroding the willingness to save. It is vital that this attitude is tackled."

Mr Pomery's wish-list centres on more flexibility around retirement, such as being able to draw a partial pension while continuing to work part-time. He would like to see simplification, including the end of contracting-out. But that should be backed by powerful incentives to encourage people to save for retirement, rather than compulsion.

"The Government should be creative and radical," Mr Pomery said. "For instance, adopting a 'buy one, get one free' contribution-matching approach for the lower paid in addition to giving tax relief on contributions."

He would also like to see that chimera, a "decent" basic state pension, with a plan to phase out means-testing, paid for by raising the state pension age, but only for those under 40.

Mike Fosberry, head of pensions and financial planning at the adviser Smith & Williamson, wants to make stakeholder pensions more attractive by raising the threshold from £3,600 to £10,000 if they have taxable earnings. He would also like the Government to revive tax relief on life-insurance premiums, which was abolished by the Conservatives in 1984.

"The opportunity could be taken to offer tax relief on premiums for life assurance cover up to a level of say £100,000, and disability cover of say £10,000 a year. While providing valuable benefits, it could take some onus off the state to provide benefits in such circumstances, so the additional tax cost could to some extent be recouped."