Labour splits over Serps scheme

There is disagreement in the Labour ranks over whether the State Earnings Related Pension Scheme should be scrapped or not. Party policy commits a Labour government to keeping the scheme but the Labour chairman of the Social Security Select Committee, Frank Field, believes it should go.

Both sides in the argument agree that Serps has been run down over the years of Conservative government and that it no longer provides good value for money for most people. However, the party's social security spokeswoman, Harriet Harman, argues that it should be kept for anyone who wants to remain in it. Mr Field believes it should be replaced with compulsory personal-insurance schemes.

A Labour government would be committed to keeping the same basic pension structure as exists at present, but, like the Conservatives, it would encourage more people to take up private schemes to top up their basic state pension. The Liberal Democrats, meanwhile, believe that Serps could be phased out but only after other safeguards have been put in place.

However, there is acknowledgement among Labour politicians that private pensions do not provide adequate returns for all investors. They say that someone earning between pounds 10,000 and pounds 12,000 would lose a quarter of their savings through administration charges. Complex rules which exacerbate this problem should be simplified, they suggest.

Labour has promised to work with pension providers and to use competition between them in order to provide better pensions and to ensure proper security. In addition, those on low earnings would be entitled to a basic state pension linked to inflation under a Labour government, as they have been under the Conservatives.

Labour believes that the Conservatives' "apocalyptic" warnings about the growing numbers of pensioners in this country are overstated. Although there will be a sharp increase between 2030 and 2040, it says, the number of people retiring in the next 20 years will be lower than in the past 20.

Under a Labour government new types of pension schemes could be encouraged, including programmes run by groups of employers or by a number of firms in the same industry. There could also be local schemes, possibly promoted by chambers of commerce.

Personal pensions under Labour could be linked to the party's plans for individual savings accounts. Pension companies would be encouraged to offer savings and life assurance to their members at competitive rates.

Under the Liberal Democrats, the basic state pension would remain, and occupational and private pensions should exist to add to the safety net the state provides. All workers would be covered by it, and there would be measures to protect lower-paid employees.

Then Serps could be phased out, with earnings-related state pensions transferred over time to the private sector. However, the basic state pension would remain in state hands.