Why workers will retire hurt

Employees recognise the value of pension provision but are put off by a plethora of policies. Clifford German reports

NOT having enough money when they can no longer work is the main fear of 43 per cent of the great British working public, second only to the 54 per cent who are most worried about ill health. A majority (60 per cent) agree that there will be so many old people by the next century that the state cannot or will not be able to provide the necessary level of care for pensioners.

Only 29 per cent think that taxpayers should be expected to put their hands in their pockets to pay for existing pensioners, against 54 per cent who oppose it. Only 39 per cent think the taxpayer should pay more to improve the health service, and 52 per cent disagree. (Incidentally, many more readers of both the Independent and the Guardian do think the taxpayer should provide.)

A compulsory fund to finance personal pensions out of earnings appeals to 48 per cent of people, but 44 per cent are opposed to the idea, according to a survey of 2,000 people carried out by Research Surveys of Great Britain for Natwest Life, the life insurance arm of Douglas Hurd's new employer.

Therefore, the bank concludes, most people already accept that they themselves must bear final responsibility for looking after themselves when they are old, retired and infirm. In the circumstances, says NatWest Life, that means the general public wants the private-sector insurance companies, who provide private pensions and specialised health insurance, to provide the pensions and the healthcare plans necessary to meet the public demand. QED.

But the conclusion is not quite as simple and straightforward as it might seem. There is definitely a job still to be done. Some 46 per cent of the working population (10.9 million out of 23.5 million people) is covered, or thinks it is covered, by occupational pension schemes provided by employers, but the vast majority will not qualify for a maximum pension of two-thirds of final salary, and only one fifth of those in occupational schemes are paying to top them up.

Another 16 per cent is already paying into personal pension plans, and 37 per cent is solely dependent on the state old age pension and/or on the State Earnings Related Pension (Serps).

But a number of companies are already closing their conventional final- salary-related pension schemes to new entrants and setting up money-purchase schemes for future employees. Pension providers are deliberately targeting more companies to switch to money-purchase schemes, where the pension depends only on the performance of the funds invested, by offering to run "group" pension schemes.

These save employers the administrative chores of running the schemes and also remove any obligation to top up pensions if the investments fail to meet obligations linked to final salaries.

Meanwhile, the average payment into a personal pension is only 6 per cent of salary, and that is well short of the 10 per cent which many experts think is the minimum contribution necessary to guarantee a reasonable pension. And many employers make no contribution to their employees' personal pension funds.

Even if the principle of self-help through private funding is widely accepted, the solutions are not that straightforward. The problem of financing pensioners who need nursing-home care is even more intractable. The government's support for ways of tapping pension funds to provide cover for nursing-home fees is not going to be much use, because it depends on diverting part of the fund on retirement into insurance for nursing- home care. Few people have made provisions ample enough to fund that and still leave an adequate pension if thay live a long and healthy retirement.

There is also still a substantial minority of people who oppose the principle of increased private provision, and probably an even larger proportion who simply cannot afford to put away money to pay for pensions and/or long-term health care - because they are either unemployed or on very low wages.

Even now, with state guarantees receding faster than a Blackpool tide, it is unthinkable the state will not provide the most basic necessities for them But if, as seems likely in a voluntary system, they are too large a proportion of the population, then taxpayers will still end up providing both for themselves and supporting a large underclass.

Even if we ignore that problem, the private sector providers will face a massive task meeting the future needs for pensions and care in retirement. NatWest Life's chief executive, Lawrence Churchill, says that what the industry needs to do is to ensure that pension plans in future are simple to understand, cheap to run and easy to join. That means making the regulations less complicated than at present, without making them any less effective in protecting investors from exploitation.

It also means overcoming the fears of many working people, who admit they should be buying pensions and long-term healthcare provision, but are not because they are worried they will be sold unsuitable or expensive policies and do not know which policy to choose.

If a standardised "pool" policy could be made universally available, properly funded and managed but with minimal overheads and charges, it could allay some of those fears.

But it is unlikely to win support from a Conservative govern- ment committed to market forces. Neither is it obvious at the moment that a future Labour government would have the political courage to provide any radical answers.