Next government 'has 100 days' on pensions

THE next government must bring unfunded public sector pensions costs under control within 100 days of taking office or further undermine pension savings in the private sector, Aegon has warned.

In its pensions manifesto, The Pensions Crunch – Proposals for Change, the Edinburgh-based insurer called for an independent commission to tackle the funding of public sector pensions to address a sense of inequality felt by the private sector. Failing to do so would also jeopardise the government's success in promoting auto-enrolment in workplace pensions, to begin in 2012, it claimed.

The report said: "It's not reasonable to expect private sector workers to save a significant proportion of their income while they and their employers are also contributing an ever greater amount through their taxes to the pensions of public sector workers."

The manifesto also proposed a review of the auto-enrolment rules, under which workers aged over 22 and earning more than 5,035 a year will be automatically enrolled into their employer's existing pension or into the National Employment Savings Trust (Nest), with the right to opt out. The manifesto argues that the threshold should rise to 10,000 and that the upper age limit should be reduced to 55 to avoid those with little or no private savings from losing out on benefits for which they would otherwise have been eligible.

And the group called for the next government to pledge within 100 days that it would resist making further changes to tax relief on pension contributions. Under rules coming into force next April, higher rate taxpayers will no longer be able to claim tax relief on pension contributions at 40 per cent. Instead, the relief on pension contributions for those on more than 130,000 a year will gradually taper to just 20 per cent for those earning 180,000 or more. Aegon, which wants the rules to be shelved, claimed that a commitment not to introduce further changes to tax relief would reassure savers worried that they will be caught by future restrictions.

Otto Thoresen, chief executive of Aegon UK, said the ageing population meant pensions policy was more important now than ever. "The question isn't whether or when we start to pay for it, but how we start to do so now."