date: Tuesday 10 August embargo: 00:01 hrs Friday 13 August 2004

Attention: personal finance; pensions; industrial

three pages (inc tables)

'tax dodge' stakeholders hide workers' low contributions

The average contribution to an employee’s stakeholder pension is just £720 a year, including employee and employer contributions. But contributions, averaging nearly £2,000, paid into stakeholder pensions by non-employees - many of them the children or spouses of the well-off taking advantage of stakeholder tax breaks - boosts the overall average to just under than £1,000.

New analysis of Inland Revenue statistics by the TUC shows for the first time the different contributions made by employees and other groups. Up to now only a figure for the overall average contribution to all stakeholders of about £1,000 a year had been available.

The new analysis also reveals that only 680,000 employees are contributing to a stakeholder pension - 2.6 per cent of the employed workforce. As many of these will be top-up pensions held in addition to an occupational pension, this is further evidence of the failure of stakeholder pensions with no employer contribution to encourage the take up of pensions by the lower paid.

TUC General Secretary Brendan Barber said: 'These figures show that stakeholder pensions are a bigger failure than we thought. They were meant to get the low paid saving, but few have been taken up, and, as these figures show, contributions to employees’ stakeholder pensions are even lower than previously estimated. Many employee stakeholders will be people saving on top of an occupational pension. This is to be welcomed, but was never meant to be their main purpose.

'There is nothing wrong with stakeholder pensions in principle, but we now know conclusively that without an employer contribution they will make little or no impact on our pensions crisis. On the other hand they are clearly a good way for the wealthy to avoid paying tax.'

A woman saving £720 a year in a stakeholder pension from age 30 to 65 would receive a pension of only £56 a week (assuming it included survivors benefits and was uprated for inflation.), according to the TUC pension calculator at www.worksmart.org.uk/pension.

The figures show that:

• 10,000 people already receiving a pension are contributing an average £2,740 to a stakeholder (this provides tax advantages for some relatively well-off younger pensioners)

• 20,000 children hold stakeholders with an average contribution of £1,320

• The average contribution to stakeholders held by full time students is £1,730

• Carers make an average contribution of £1,570

• 10,000 unemployed people make an average contribution of £2,260 (This may represent the non-working spouses of high earners)

Anyone under 75 and not earning more than £30,000 a year can take out a stakeholder pension and attract full tax advantages. The wealthy can therefore provide stakeholder pensions for any non or low earners in their family - such as children, students and non-working spouses - and attract considerable tax advantages.

The average contribution from those who are not working is £1,928 - 260 per cent of the average employee contribution. And the average contribution to a self-employed person’s stakeholder is £2,010.

The figures also show that:

• twice as many men as women have taken out stakeholders

• More than a quarter of stakeholders are held by 25- 34 year olds

• Employees on average are saving just 2.9 per cent of their salaries in a stakeholder. Experts estimate that you need to save around 15 per cent of your salary all your working life to get a reasonable pension when you retire.

Stakeholder contributions analysis

1. By age and gender

Numbers Contributing

Age Female Male Total

15 and under 10,000 10,000 20,000

16 - 24 30,000 80,000 110,000

25 - 34 80,000 160,000 240,000

35 - 44 70,000 150,000 220,000

45 - 54 60,000 110,000 170,000

55 - 65 20,000 60,000 80,000

65 and over 0 0

Total 270,000 570,000 840,000

2. By income

Employees - Number Average Approx % of Potential

Income range Contributing Contribution Earnings* Shortfall**

£0 - £10,000 170,000 £510 10.2% £240

£10,000 - £20,000 300,000 £520 3.5% £1,725

£20,000 - £30,000 150,000 £680 2.7% £3,075

£30,000 and over 60,000 £2,370 6.8% £2,780

Employees Total 680,000 £720 2.9%*** £3,025

Self-employed

£0 - £10,000 30,000 £910

£10,000 - £20,000 30,000 £850

£20,000 - £30,000 10,000 £1,530

£30,000 and over 20,000 £6,110

Self-employed Total 90,000 £2,010

Other Groups

In receipt of pension 10,000 £2,740

Child 20,000 £1,320

Full-time education £1,730

Carer £1,570

Unemployed 10,000 £2,620

Other 20,000 £1,590

Other Groups Total 60,000 £1,928

Overall Total 840,000 £950

(employees, self-employed and others combined)

* Earnings figures used for the various earnings ranges are - £5000, £15000, £25000 and £35000.

** How far short the contribution is of 15% of earnings.

*** Assumes the average wage is £25000.

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Press release (1,000 words) issued 13 Aug 2004