Phil Agulnik, Nicholas Barr, Jane Falkingham and Katherine Rake
Published April 1999
The government's pensions Green Paper 'a new contract for welfare: partnership in pensions' proposes fundamental changes to the UK's retirement income system. Members of CASE and the Department of Social Policy at LSE have looked at the likely implications of the reforms for pensioner poverty, income security in old age, economic growth, the National Insurance system, tax reliefs, and women. Agulnik's analysis of redistributive effects of the State Second Pension (SSP) shows that it will result in much better benefits for low earners than would have been the case under SERPS. However, financing this improved provision through National Insurance contributions will mean that the burden of paying for the new scheme will be heaviest for those close to the upper earnings limit. Barr questions the macro-economic advantages of increasing the amount of funded pension provision via Stakeholder pensions. He finds there is no particular reason to favour the proposed balance of 60% private pension provision to 40% public provision over some other ratio. He also finds that Stakeholder pensions will not offer contributors complete income security in retirement due to uncertainties about investment returns, annuity rates and future inflation. Falkingham and Rake argue that the Government's proposals have failed to incorporate fully the needs of women. Women will be underrepresented amongst Stakeholder pensioners, and the exclusion of very low earners and carers with children over 5 from eligibility for the SSP will adversely affect women. Agulnik then looks at the proposed tax relief rules for Stakeholder pensions. While there are good reasons for the proposed £3,600 limit to tax relief on contributions, the retention of the existing rules for personal and occupational schemes is anomalous.