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Pensions bill due to be published

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The pensions bill is set to be published next week – and the work and pensions secretary John Hutton has been defending what the government sees as the most significant provision, the raising of the state retirement age.

But the Equal Opportunities Commission (EOC) has become the latest organisation to point out that the proposed personal accounts could have detrimental effects.

The EOC’s argument, based on research conducted together with Scottish Widows, is that the pension system is unable to cope with the time women take out of the workforce.

Women are five times more likely to take a career break than men and are 17 times more likely to be out of work because they are a housewife or caring for children. Their ability to save during these periods is reduced and half of women stop saving altogether when they have children.

In order to get people to save more for their retirement, the government has proposed a system of personal accounts, in which all employees will be automatically enrolled. The EOC welcomes personal accounts, as they are better equipped to fit the reality of people’s working lives and help those who are currently excluded from decent, low cost employer schemes.

However, the EOC argues that unless vital changes are made to the government’s proposals, many women and men could still struggle to save enough for an adequate pension.

The EOC wants to see one-off payments and extra contributions incorporated into personal accounts so that people can make up for times when they are unable to save.

Jenny Watson, chairman of the EOC said: “Saving for a private pension is vital to ensure security in retirement, but women are short-changed because the current savings system is not built around real life working patterns.

“The government’s proposals for personal accounts are a great step in the right direction but they need to be flexible enough to enable women and men to build up sufficient savings, including through small lump sum contributions, even if they take time out of work or frequently change employers.”

In a speech to the ABI, John Hutton said that personal accounts would be designed to complement not detract from existing pension provision and added that the government is looking very carefully at the issue ahead of a new white paper to be published next month.

“The White Paper will set out our views on the best way forward,” he added. “But it is clear that: firstly – private sector expertise will be crucial to the success of personal accounts – which is one reason why the proposed delivery authority is so important. We envisage that personal accounts will be delivered by the private sector.

“Secondly, we should strive to incorporate a proper opportunity for savers to exercise choice over the management of their fund and that this would be one of the principal responsibilities of the delivery authority.

“And thirdly, we must guard against ‘mission creep’. The system of personal accounts needs to be focused on its target market. They will be designed in order to fill a gap in the existing market, not substitute for it.

“Protecting existing provision isn’t just about the safeguards put in place to ring-fence personal accounts. Supporting good quality existing employer provision is also about reducing the regulatory burden and making the existing system simpler for employers and providers.”

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