Darling sets out pensions reform

THE GOVERNMENT is to introduce swift legislation to bring in "stakeholder pensions" for millions of people in the new session of Parliament starting today.

A Welfare Reform Bill to be included in the Queen's Speech will be wider than expected in an attempt to show the Government is still committed to radical changes to the social security system.

The Bill, to be unveiled by Alistair Darling, Secretary of State for Social Security, will promise to create "a new framework of secure, flexible and value-for-money stakeholder pension schemes".

It will aim to provide second pensions for people facing poverty in retirement because they will have to rely on the basic state pension. Targets include the self-employed, people who change jobs several times during their working life and those who take "time out" to bring up their children.

However, the Bill will not be the Government's last word on pensions. A Green Paper next month will set out phase two of the "stakeholder pensions" plan, and tackle the sensitive issue of whether people without personal or occupational pensions should be forced to join a scheme.

Mr Darling is pressing for a compulsory system but Gordon Brown, the Chancellor, is wary. He fears such a scheme would be seen as a backdoor tax hike and jeopardise Labour's drive to reassure Middle England it can be trusted on taxation.

Cabinet ministers believe Tony Blair's verdict on whether contributions should be compulsory will be crucial. He is holding talks with Mr Darling and Mr Brown as they finalise the Green Paper.

Compulsion would require further legislation, which is unlikely to be added to the Bill announced today. It would probably be introduced in a year's time.

By pressing ahead with the first phase of its much-trumpeted pensions reform this year, Mr Darling hopes to kill speculation in the City that the Government has "gone soft" on stakeholder pensions following the resignation in July of Frank Field, the free-thinking former Minister for Welfare Reform.

The Bill will implement four potentially controversial changes to the social security system:

Forcing all new claimants to attend interviews with a personal adviser, to prevent people spending "a life on benefit";

A shake-up of disability benefits to encourage the disabled to work, with stricter tests for new claimants of incapacity benefit:

Curbs on widows' benefits to save pounds 500m, and

"Pension splitting", under which the divorce courts could give wives the right to a share of their husband's pension, or vice versa.

Ministers are bracing themselves for opposition from Labour MPs, especially over the changes affecting widows and the disabled. Some rebel backbenchers could table amendments to the legislation.

Mr Field warned that the measure could provoke a rebellion like last year's revolt over cuts in benefits to single mothers. He said: "The Government will have to explain much more effectively than it has done up to now both the changes for disabled people and the number of women who will lose out under the proposals to reform widows' benefit."