Britain will launch the most ambitious overhaul of
its pension system in 60 years on Thursday to prevent a looming crisis caused by
an ageing population.
The government's eagerly awaited proposals, due to be presented to
parliament, follow years of debate over how to provide a more generous basic
state pension while encouraging workers to supplement it by saving for private
pensions.
The reforms are "probably the biggest shakeup of the pensions system since
the Attlee government (in the late 1940s)," Pensions Secretary John Hutton said
this week.
In common with many European countries, Britain's ageing population faces a
pensions timebomb, with an estimated 7 million people not saving enough for
their old age.
Employers, facing rising costs, have been closing traditional, generous
pension plans in favour of schemes in which the employee carries more investment
risk.
If nothing is done to tackle an estimated 57 billion pound ($107.2 billion)
pension shortfall, many Britons might be dependent on means-tested state
handouts when they retire.
The government is set to call for a rise in the state pensionable age and to
endorse a plan for a new National Pension Savings Scheme (NPSS).
Workers whose company did not have its own pension scheme would be
automatically enrolled into the NPSS.
While many Britons agree on the need for reform, the proposals are certain to
draw fire, particularly from small businesses that face a heavier pensions
burden.
Some critics have said the proposed NPSS would undermine the pensions sector
by damaging existing plans and reducing the range of pension fund providers.
The reform proposals caused a row, only recently settled, between Prime
Minister Tony Blair and his likely successor, finance minister Gordon Brown,
concerned about their cost.
They aim to provide a more generous state pension by linking increases in the
state pension to rises in earnings.
Since 1981, state pensions have risen in line with inflation, generally lower
than rises in earnings.
A government source told Reuters on Wednesday that the link to earnings would
be restored between 2012 and 2015.
One of the most controversial aspects of the reforms will be a plan to force
employers to contribute at least 3 percent of a worker's salary to the new
national pension scheme.
Employees will contribute 4 percent, with the state contributing 1 percent as
tax relief, the Guardian newspaper, which obtained a leak of the proposals, said
this week.
It said the employer contribution would cost firms an extra 2.6 billion
pounds, but that the government would propose a three-year transition package to
help employers cope.
Philip Hammond, the opposition Conservative Party's spokesman on pensions,
said his centre-right party supported the key elements of the planned reform.
But he faulted the government for failing to build a cross-party consensus on
the proposals and said a three-year transition period for businesses to adapt
was inadequate.
"We think it has to be at least six years. This is a crucial issue because if
we get it wrong it will damage the economy and it will damage employment," he
told Reuters.