New pension ideas "full of holes"

Britain needs new-style pensions which cut costs for employers but provide workers with guarantees on the retirement income they're likely to get, according to a discussion paper from the Department for Work and Pensions.

It suggests that companies which have offered generous salary-linked schemes might cut out annual inflation increases for future members, remove benefits for spouses, or limit pensions for employees who leave for a job somewhere else.

On the other hand, employers who provide the most basic schemes, which provide no promise of a particular level of pension income, could look at confidence-building improvements. They could guarantee that members would at least get their contributions back or guarantee a level of return, in exchange for a fee.

From this autumn, the government is forcing companies to enrol staff in workplace pensions, but the Pensions Minister, Steve Webb, said people's trust in the system needed to be restored so they don't opt out and they "get the most out of what they put in".

But one leading pension consultant who has looked at the ideas commented that they are "full of holes".

John Ralfe said there was "no magic money tree and no fantastic solutions". 

In his view the paper misleads people by suggesting they can buy a guarantee for their savings returns and that this guarantee would cost very little. 

Companies, also, would baulk at the cost of providing any extra guarantees.

He added that people had to reconcile themselves to working longer, retiring later and saving more.