Education must accompany UK pension moves-industry

LONDON, May 20 (Reuters) British government proposals to overhaul the pensions system will only succeed fully if people can be educated in the art of planning financially for their old age, industry watchers say.

Next week, the government will unveil a policy White Paper which is expected to propose lifting pension payments by linking them eventually to earnings but making people wait longer for retirement, and the introduction of a national savings scheme.

The reforms are aimed at bridging a 57 billion pound (8 billion) pensions gap by boosting savings.

Their success could hinge on an extensive information campaign and on efforts to help consumers decide whether to stick with the savings scheme, which could cost 5 percent of their gross salary above 5,000 pounds (,440).

Millions of Britons without an occupational pension are expected to be enrolled in the scheme. The danger is that spendthrift consumers could opt out while others could stay even when they face mounting credit card or other debt.

''Consumer awareness needs to be a major part of the overall proposition,'' said Drew Fellowes, head of the life advisory practice at KPMG.

''If they (the government) underestimate how much investment is required, how much work is required to educate consumers around the requirements they will have in retirement, then (these reforms) will be very difficult.'' In a report in March, the Financial Services Authority said consumers -- particularly those under 40, the main target of the savings scheme -- have a loose grasp of financial risk, many are struggling with debt and few are saving enough for old age.

The FSA survey found 70 percent of those polled had taken no steps to cope with any unexpected drop in income and, while over 80 percent said they did not expect a state pension to provide adequate income, 37 percent had not taken any additional steps.

Recent research by insurer Winterthur showed consumers were far more likely to stick with occupational pension schemes if they were well-informed -- regardless of how generous employers were with their contributions.

''What we have been doing is focused on price, on simplicity, when the real issue is public apathy and the 'it will never happen to me' approach,'' said Mike Kellard, head of insurer Winterthur Life in the UK.

SAVE OR SPEND? The issue of financial information on retirement has become increasingly crucial as employers, faced with rising pension costs and an ageing population, close final-salary schemes and move to cheaper programmes where the onus is on workers to save.

Royal Bank of Scotland was the latest firm to make a radical move away from a final salary scheme, announcing this week it will close its existing scheme to new employees and instead offer a wage increase to be invested freely.

But unlike RBS, which will offer individual financial advice, it is unclear whether the government's draft plans will contain any provision for individual financial advice, given concerns over the cost of the pension savings scheme.

''There is an important role for workplace-based financial advisers to help the individual decide whether or not they should join the NPSS,'' said Adrian Boulding, pensions strategy director at Legal&General Assurance.

''For a number of people there are higher financial priorities they should spend their money on -- life assurance, income protection for younger employees with a family to support, paying off debt.'' Reuters SK G0425