MONEY COMMENT
MPs Say Pensions Should Be Compulsory

By Cliff D'Arcy
January 20, 2003

A recent survey of MPs from the three main political parties has established that politicians are strongly in favour of compulsory pensions. Nevertheless, in a recent Green Paper, the government backed away from this issue, probably to avoid upsetting big British businesses.

For the record, around 80% of the 81 MPs surveyed felt that the government should introduce legislation forcing employers to contribute to staff pensions. A similar proportion of MPs felt that workers themselves should also be required to contribute to their workplace pension schemes.

That's a far cry from where things stand at present: any employer with more than four employees has to offer staff at least a Stakeholder pension. However, employers are not required to make contributions into these schemes and employees are not obliged to join.

Worse still, very little is being done to stop companies from closing company pension schemes. As we've pointed out before, attractive final-salary schemes are a dying breed - most of the UK's largest companies no longer allow new members to join these "guaranteed" plans. Many employers prefer to offer cheaper but riskier money-purchase pensions, the growth of which is dependent on stock-market returns.

It's generally recognised that company schemes where the employer contributes (and bears the costs) are preferable to staff making their own financial arrangements. Then again, there are dangers if the firm runs into financial difficulties, as highlighted in a debate in the House of Commons today.

Oliver Heald, Shadow Minister for Work and Pensions, called on the government to change the rules on the winding up of company pension schemes. Mr Heald wants the government to intervene to ensure that the assets of wound-up schemes are distributed more fairly.

At present, the lion's share of a scheme's assets generally goes to existing pensioners, with precious little - or nothing - left for other members, who may have contributed to the scheme for their entire working lives.

So, by and large, it's pretty clear that, when it comes to providing for your retirement, you can't rely on the government or your employers. In fact, unless you are already a member of a generous company scheme, the only person you can rely on is yourself.

If you're planning on doing anything more exciting than eating baked beans in a freezing fleapit when you retire, you'll need to start saving a lot. The earlier you start, the better - you're playing a long game, so act like a pension fund and consider saving into a plan that invests in the stock market.

Whether you join your company scheme, set up a personal pension or drip-feed money into shares via an ISA, any money you squirrel away now will mean fewer rainy days in your sixties.

Visit the Fool's Pensions Centre or read our guide What Everybody Must Know About Pensions.