People will be told to reassess if they would be better off paying into the S2P rather than their private pension.

The pensions industry said the letter was part of an initiative to inform and educate consumers.

But one consumer group fears the letter does not give enough practical advice to people for them to make a decision.

Growing concern

The S2P is the new pension system.

We believe the situation is so serious that we are calling upon the Financial Services Authority (FSA) to conduct a full market analysis Tereza Fritz, Which

It replaced the State Earnings Related Pension (Serps) on 6 April 2002.

If you contract out of the S2P into a personal pension scheme, such as a stakeholder, you will pay the same National Insurance .

And the Inland Revenue should top-up that personal pension, through an annual rebate, with the amount equivalent to what you will have paid towards your additional state pension.

However, there has been growing concern that consumers could have been badly advised by financial advisers to contract out.

Shortfall

Which, formerly known as the Consumers’ Association, has estimated that some people are in line to receive 60% less pension than they would have received if they had not opted out of the state scheme.

The letter being sent to six million people has been put together by two finance industry bodies, the Association of British Insurers (ABI) and the Association of Independent Financial Advisers (AIFA).

The letter will advise consumers of the following:

• They should review their decision to stay opted out of the S2P each year

• Contracting out should not be based solely on the expectation that a bigger pension will be secured

Pensions minister, Malcolm Wicks MP, welcomed the industry initiative it as providing “a balanced view of the issues involved in contracting out.”

However, Which said that the letter left people “in the dark” about what to do next.

“We believe the situation is so serious that we are calling upon the Financial Services Authority (FSA) to conduct a full market analysis to determine if there has been significant market failure in this area,” Tereza Fritz, Which spokeswoman, said.

The level at which workers begin paying a 40p tax rate would jump from 36,000 to 40,800, under one of a range of tax options unveiled on Tuesday.

If Shadow Chancellor Oliver Letwin gave the go ahead the proposal would save higher earners up to 800.

The proposal, estimated to cost 2.6bn, is one of five options in the Tories’ consultation paper and is not policy.

The Conservatives plan eight tax consultation papers over the coming months focusing on what the Tories say is an unfair and over-complicated taxation system.

A change of direction is needed to help people on lower incomes and people trapped in top rate tax Oliver Letwin

Mr Letwin said: “Tony Blair claimed that he had no plans to raise taxes at all. That was all talk.

“By stealthily raising [tax rate] thresholds more slowly than the increase in earnings, Tony Blair has dragged 4.2m more people into paying income tax and 1.35m more people into paying top rate income tax.

“Part time workers in the minimum wage are now paying tax, and deputy head teachers are paying top rate tax.

“A change of direction is needed to help people on lower incomes and people trapped in top rate tax.”

‘No guarantee’

For Labour, chief secretary to the Treasury Paul Boateng said the Tories had not made a firm commitment to tax cuts “because none of their sums added up”.

“They cannot make their savings and so the only guaranteed cut you will get from the Conservatives is an immediate 20 billion cut in spending on vital public services such as schools and hospitals, defence, police and transport, and science and skills.'’

Liberal Democrat Treasury spokesman Vincent Cable accused the Tories of spending expected savings from cutting waste and bureaucracy several times.

“It’s obvious that the Conservative Party believe they can’t win the next general election as they continue to make promises with money they don’t have.

“Fairer taxation is a desirable aim but it is an empty promise unless clear costings of policies are published. This is something the Liberal Democrats have been happy to do.”

‘Menu of options’

Entitled Income Tax and National Insurance - A New Direction, the Tory paper published on Tuesday, unveils five options which aim to create a low tax economy.

But the Conservatives are keen to stress that the options being unveiled do not “constitute any guarantee or promise” that a particular option would form part of a future Tory government’s budget plans.

Instead they “represent a menu from which a Conservative government may draw when budgets”, the party said.

The options are:

David Neil, 66, his wife, Constance, 65, and their son, Jeffrey, 34, denied handling stolen goods at Newcastle Magistrates’ Court.

The Neils, from Stanley, County Durham, elected for a crown court trial.

They were arrested after attempting to sell the card on the internet auction site eBay.

They are accused of dishonestly handling the card between January 1997 and August 2006 after it had been allegedly stolen.

Magistrates adjourned the case for a hearing at the same court on 30 October.

All three were remanded on unconditional bail.

Princess Margaret, the younger sister of Queen Elizabeth II, died in February 2002, aged 71, after suffering a stroke and heart problems.

In an interview published in The Daily Telegraph on Saturday, Work and Pensions Secretary Alan Johnson said:

“The first question is: should everyone be entitled to retire on the basic state pension? Yes is the answer, irrespective of their contributions.”

He said the change would particularly help women and pointed out that less than a fifth of them get a full state pension at retirement, and barely half get any state pension at all, compared with 90% of men.

“The current system is unfair to women… You cannot sustain an argument that says we have a more equal workplace for women… then when women get to pension age it is back to inequity.

“If we could get to a situation where women had their full state pension in their own right, then at least there would be equity,” Mr Johnson said.

‘Very

At the moment people need about 10 years of working and paying full National Insurance contributions to get any state pension, and around 40 years to get the full pension of 79.60 a week.

Under a “universal” or “citizen’s” pension everyone would get the pension based on a simple residence test.

Alan Johnson is quite right to say that the pension system is not working well for women in the modern world Mervyn Kohler, Help the Aged

Mervyn Kohler from Help the Aged told BBC Radio 4’s Money Box that Mr Johnson’s commitment to change was very important:

“This is very significant, coming from the secretary of state for pensions.

“There is a general consensus out there that our state pension arrangements are very inadequate, particularly inadequate for women.

“They were after all designed in an era when men worked and women did not; when nearly everybody got married and stayed married to the same person.

“Well that world has gone. And Alan Johnson is quite right to say that the pension system is not working well for women in the modern world.”

One option

Although the radical change to a citizen’s pension is not government policy, a spokeswoman for the Department for Work and Pensions confirmed to the BBC that Alan Johnson’s idea for a universal pension was being discussed, but it was “one of a number of options”.

She added that it was expected that whatever reform was adopted, the earnings-related pension would still be paid on the basis of contributions.

Mr Johnson was appointed in September, and is widely seen as an ally of the Prime Minister rather than Chancellor Gordon Brown, who prefers targeting benefits on the poorest pensioners rather than paying the same pension to everyone.

We are going to see some significant changes and I hope this will be part of it Mervyn Kohler, Help the Aged

Other critics of a universal pension say it would be unfair on those who had paid their National Insurance contributions - which are up to 11% of pay - if people who had paid nothing got the same pension.

Mervyn Kohler told the programme he disagreed:

“There is a nostalgia for this process but that principle has been challenged.

“We already pay toward the NHS and we must modernise our pensions to reflect the new world of labour. It is not just women who do badly.

“People working internationally, taking part-time work, taking breaks for or career breaks, all of them are losing out under the existing arrangements.

“I think there is immense pressure for change. We are going to see some significant changes and I hope this will be part of it.”

BBC Radio 4’s Money Box was broadcast on Saturday, 4 December, 2004 at 1204 GMT.

The programme was repeated on Sunday, 5 December, November, at 2102 GMT.

In most cases the loss amounts to a couple of pounds, but up to one million people might be receiving more than 100 less than they should.

And a small number could be losing out by as much as 250 a year, the National Audit Office said.

The problems have arisen because national insurance records were completed incorrectly by employers.

Most of the people who are thought to have been affected are short-term or low-paid workers, often working in workplaces that have a high staff turnover.

When workers reach retirement they may not get their full State earnings-related pension (Serps).

Serps is an additional state pension, which is based on National Insurance Contributions, and is paid to eligible workers in addition to the basic state pension.

Edward Leigh MP, chairman of the public accounts committee, said: “We know that Serps faces a number of problems. Today’s report reveals another.

“The Revenue needs to find a way to improve the information being provided by
employers.”

Matching details

The Inland Revenue has tried to trace and update the records but if the items can not be matched they are kept permanently on “suspense files”.

The quality of the contributions information received from employers remains a particular and enduring difficulty Sir John Bourn, auditor general

There are more than 100 million items within the suspense files.

Attempts by the department to match the items has “generated no impact at all on benefits” and further clerical checking was too expensive, the report said.

Some of the suspended files date back by as much as 29 years, which means that some of those affected are already drawing their pensions.

Auditor General Sir John Bourn said: “The Inland Revenue continue to face challenges in individuals’ National Insurance contribution records, upon which large amounts
of the public’s benefit depend.

“The quality of the contributions information received from employers remains a particular and enduring difficulty that various measures are addressing.”

In recent years the number of unmatched records has declined because the Inland Revenue has improved its systems.

It is hoped that by increasing the number of electronic submissions the number of unmatched records will decrease.

Original article

The ABI has made the suggestion in response to a major report published on Tuesday, 12 October, which showed that 12 million people are not saving enough for a pension.

ABI Head of Pension Policy Joanne Segars told BBC Radio 4’s Money Box that the importance of employers contributing to their pension scheme cannot be over-estimated, and said that even putting in 5% of pay can boost membership five-fold.

The ABI has proposed a tax rebate whereby if the employer puts a certain amount of money into staff pensions, and gets a certain amount of the workforce to join, then they would get back some of the National Insurance they had paid.

Incentives

It is a view supported by the National Association of Pension Funds (NAPF). Its Chief Executive Christine Farnish told the programme:

“We need ways that employers can be [given incentives] to put more into the pension pot.

“We are talking about re-jigging the entire system; putting the money that is currently spent by the state on, for example, 40% tax relief to high-earners and National Insurance rebates, and saying: can we spend the same amount of money in a more effective way?”

BBC RADIO 4′S MONEY BOX The programme was broadcast on Saturday, 16 October and was repeated on Sunday, 17 October at 2102 BST. Full programme information

Earlier, the chairman of the commission which had produced the shock report, Adair Turner, told the programme that if such changes did not work he would consider that we should all be forced to pay into a pension scheme when he published his second report in a year’s time:

“The thing we have to look at is whether the barriers to the present, voluntary system [can be overcome]. Can codes of conduct and automatic enrolment in pension schemes make employers provide schemes and encourage people to join them?

“At the end of the day we will have to make a judgement as to whether making the voluntary system better can have enough mileage, versus making it compulsory.”

Work for longer

Mr Turner warned that working longer had to form part of the solution:

“Average retirement ages should increase. One of the problems is that we have had increasing life expectancy and up to four years ago the average age of retirement was coming down.

“As life expectancy goes up further, at least some of that has to go into more years of work. It cannot all go into more years of retirement. The figures do not add up.”

But he said he might not recommend a change in the state pension age, something already ruled out by ministers:

This is the most complex state pension system anywhere in the world Adair Turner, Pensions Commission

“I think we will stick to features of the state pension system which are required to make the private system work. I am not at all sure that requires us to comment on the state pension itself.”

One of the things he will comment on though is the complexity of the state scheme. He told Money Box:

“We came to the conclusion that this is the most complex state pension system anywhere in the world.

That is a problem, because when people decide how much to save, they need to know how much they are going to get from the state, and it is difficult for people to understand that at the moment.”

Policy u-turn?

Major simplification is on the government’s agenda too.

Speaking in the House of Commons hours after Adair Turner’s report was published, the Secretary of State for Work and Pensions Alan Johnson was asked by Liberal Democrat MP Steve Webb if he was “rather more positive about a pension based on residence rather than on contributions”.

Mr Johnson replied: “I have an absolutely open mind, veering towards being very positive about it. That is as much as I can say at the moment… The idea is really interesting and deserves much closer examination.”

This about-turn says has gone too far Richard Wilson, Help the Aged

His comments led many MPs to believe he was announcing a u-turn in government policy, and that was supported by Richard Wilson from Help the Aged.

He told the programme:

“This is highly significant. For the last seven years we have been told that means-testing is the only fair and sensible way to provide extra money for pensioners.

“Now this about-turn says means-testing has gone too far and we need a better state pension, a fairer state pension. That is a huge change for 11m pensioners.”

BBC Radio 4’s Money Box was broadcast on Saturday, 16 October, 2004 at 1204 BST.

The programme was repeated on Sunday, 17 October, at 2102 BST.