New Pension Fears as Report Says Key Benefits Should Go

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Byline: JONATHAN PRYNN;JIM ARMITAGE

A MAJOR new pension scare was sparked today by a report urging the Government to scrap key benefits in company retirement schemes.

The report, from pension expert Alan Pickering, said firms should be allowed to stop index-linking of pensions and having to pay a pension for life to the spouse of a scheme member after his or her death, so-called "survivor benefits".

Both are currently required by law.

Mr Pickering said the proposed changes, which will raise new fears about poverty in old age, were needed to stop the wholesale closure of generous, but expensive, final-salary schemes and replace them with far less attractive stock market-linked pensions.

The proposals would represent a radical and historic turning back of government attempts to improve pension benefits over the past century.

The report, called A Simpler Way to Better Pensions, admitted that "in some areas the guaranteed future pension benefits for those in pension schemes may be scaled back somewhat".

It added: "This might seem to be a consumer loss, but it is better than an employer faced with unsustainable costs in their defined-benefit schemes having to close altogether." The proposals, seen as a last attempt to save the final-salary scheme from extinction, provoked a furious response from trade unions and campaigners for the elderly.

Roger Lyons of Amicus, the biggest manufacturing trade union, said the report was a "a copout" and " completely useless". He said: "If you take away these benefits, you might as well abolish pensions completely."

Rodney Bickerstaffe, president of the National Pension Convention said: "The only way to guarantee a decent pension is through a state pension. That should be the cake and an occupational scheme should be the icing on top."

Campaigners are particularly concerned that the value of company pensions could be eroded by inflation if index-linking is abolished. At the Government's-2.5 per cent target rate of inflation a pound sterling10,000 pension would see its value cut to pound sterling6,000 after 20 years.

The report, commissioned by Alistair Darling, the then Secretary of State for Work and Pensions last September, is likely to be followed by legislation implementing many of the 82-page report's recommendations.

However, shadow pensions secretary David Willetts said the proposals were too late to save final-salary schemes.

"This is closing the stable door after the horse has bolted," he said.

"There is no indication that the Government is taking the measures needed. …