Analysis
By Andrew Verity BBC personal finance reporter

Behind the criticism of Labour's pensions policy are fears that it is failing to defend what is good in the current pensions system - and also failing to deliver a workable replacement.

Good employers take their pension provision seriously and don't take money back on the pension in good times

Andrew Smith

Since 1997, the government's strategy on how to get people to save more for retirement has relied on its stakeholder pension reforms - reforms increasingly seen in the pensions industry as a flop.

For the last year, all employers with more than five staff have had to have a pension scheme, with a stakeholder pension provider - typically a life insurer - assigned to run it.

However, the employers are not compelled to contribute to stakeholder pensions, and neither are employees.

The schemes are not popular with life insurers either, who complain that a rule capping charges at 1% of contributions makes them uneconomical to administer.

They argue that because the charges are so low, they cannot afford to employ sales people to visit companies and persuade staff to contribute.

As a result, only a small minority of employees have decided to contribute to a stakeholder pension.

While the employer must "assign" a provider, the schemes often exist only as marketing packs sitting in an employer's filing cabinet, with no-one actually using the arrangements to save.

Funds hit by share falls

Fears over pensions have been fuelled by a growing rush by employers to limit pension commitments.

Dozens of FTSE 100 companies are now ditching schemes with guaranteed benefits in favour of cheaper schemes.

The Pru closed its final salary pension scheme to new recruits

The slumping stock market has had a devastating impact on the investments held by pension schemes.

As most schemes invest 70% of their members' money in shares, their funds have shrunk dramatically.

Three quarters of schemes are under-funded - with less in their pension funds than they would need to pay the pensions they have promised, were the sponsoring company to close - according to research for the BBC by actuaries Hewitt Bacon & Woodrow.

Anger at pension changes

Trade unions have been angered by employers using the stock market slump as justification for closing high quality, 'final salary' pensions.

Final salary schemes allow staff gradually build up a guaranteed pension worth up to two thirds of their salary at retirement.

Most recently insurance giant Prudential - which runs thousands of pension schemes for smaller companies - closed its final salary scheme to new recruits.

Abbey National, AstraZeneca, Barclays and Boots have all done the same.

Final salary schemes are typically replaced by so-called 'money purchase' pensions - where the employer offers no guarantees.

Instead, both employer and employee contribute to an investment scheme and the pension that results depends entirely on the performance of the stock market.

What angers the trade unions is that in almost all cases, employers opt to contribute less to the new schemes than they did to the old.

Employers switching from final salary to money purchase trim their contributions by 40% on average - broadly equivalent to a cut of 4% from the employee's pay packet.

'Pension thieves'

Unions have also complained about employers taking 'contribution holidays' during years when rising stock markets put the pension fund in surplus.

Andrew Smith: praised union pressure

The unions estimate that employers have saved more than �20bn in contributions this way.

Yet when the stock market falls and they are expected to contribute, many employers have halted their final salary schemes, cutting their contributions.

In a motion to conference condemning directors of large companies as "pension thieves", Roger Lyons, leader of the Amicus trade union, called for employers to be compelled to make contributions at a legally binding level.

In his speech to the Labour party conference, the government's Work and Pensions Secretary, Andrew Smith, congratulated unions for "putting the pensions promise at the heart of the bargaining agenda".

"Good employers take their pension provision seriously and don't take money back on the pension in good times so the money isn't there when times aren't as good," the pensions minister said.

But he stopped short of commenting on union demands for employers to be compelled to contribute a specific level of pension contribution.

Tackling poverty

For those who have already retired, the government's success in reducing the worst of pensioner poverty is now gradually being acknowledged.

However campaign groups like Age Concern and the National Pensioners Convention are concerned that it has been achieved by stepping up means-tested benefits such as the Minimum Income Guarantee (MIG), which promises pensioners a minimum level of income substantially higher than the basic state pension.

The government has resisted demands for policy changes ahead of a Green Paper on pensions, now expected in November.

That will include a review of taxation of pensions by a team from the Inland Revenue.