Government promises review of pension system

The government is looking to carry out a wide-ranging reform of the pensions system.

The new Work and Pensions Secretary, Iain Duncan Smith has said that the government, as well as reviewing the state retirement age and linking the basic state pension to earnings, is considering a phase out of the default retirement age.

The changes are a necessary response to the fact the people are living longer.

Mr Duncan Smith continued: "The idea of someone being fired just because they turned 65 is nonsense. People who are good at their job and want to work for longer should be able to do so. In my view, that's only fair."

The Minister also gave his backing to auto-enrolment workplace pension schemes for employees.

He said: "We want to encourage employers to provide high quality pensions for all their employees, and I look forward to working with employers, consumers and the industry to make automatic enrolment and increased pension saving a reality."

But David Yeandle, head of employment policy at the manufacturers' group, the EEF, argued that any changes to the default retirement age and state pension age should be introduced on a gradual basis in order to give employers time to adjust.

Nevertheless, Mr Yeandle welcomed the government's support for auto-enrolment: "Whilst it is understandable that new ministers will want to review the commercial contracts for implementing the National Employment Savings Trust (NEST), we hope that a decision will be reached quickly so that the opportunity for as many people as possible to save for their retirement is not delayed."

NEST is due to roll out from 2012 onwards, but Pensions Minister, Steve Webb has promised that there will be an assessment of the relationship between auto-enrolment workplace pensions and the state pension.

Malcolm Small, senior adviser on pensions policy at the Institute of Directors, backed the review.

He said: "We welcome the announcement that the interaction between pension saving and means tested retirement benefits is to be investigated. This is not just an issue for the National Employment Savings Trust (NEST), but for all pension saving - and we believe that modest earning pension savers may in many cases be saving to no effect.

"Small pensions will, in certain circumstances, directly replace the means tested retirement income benefits that the saver would have been entitled to if they had done nothing at all. This cannot be right, and acts as a direct disincentive to save. Until this issue is resolved, and until clear incentives to save are established, all other pension reforms are peripheral.

"We have always supported the NEST project, but we have also argued that we need a decent, universal, basic state pension as of right, which acts as a bedrock for further saving. We think this can be afforded today, without Exchequer cost, and look forward to working with Ministers and officials to show them how to do it."