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BeeHive  >  BeeLines  >  Government annouces six principles for pension reform

Government annouces six principles for pension reform

Iím sorry to keep bothering you with BeeLines at the moment, but itís really not my fault. They must have put something in the water at Westminster I suppose. There canít be any other explanation for the fact that we are getting Government announcements on pensions practically every day right now. I mean, I wouldnít mind a day off every now and then and this is just getting silly.

Anyway, Iíll get on with it so you can try and keep up with whatís happening.

Alan Johnson, the Secretary of State for Work and Pensions, announced six principles to guide pension reform yesterday. He says these will underpin the reform of both State and private pensions and will be the criteria against which further reform will be evaluated. Evidently that includes the recommendations that the Pensions Commission will make later this year too. Those of you who, like me, find it astounding that we are embarking on a major reform programme for both State and private pensions while the inkís barely dry on the most far-reaching changes to our pension system for generations, need to calm down a bit. Itís just that sort of negative approach to change that can really get to you and youíll only end up in the same state of bemused incredulity of the sort that kicked in for me some time last year that Iím still struggling to shake off. Actually, when I say the inkís not dry yet on the A-Day changes, though, Iím not really giving the whole story. I mean some of the ink is still in the pens of the Government scribes at the moment and hasnít even seen the light of day yet. But there I go with those negative vibes again. Iíve got to snap out of it!

To get on, these six shiny new principles to guide pension reform are:

  1. The pension system must tackle poverty effectively
  2. The opportunity (should be there) to build an adequate retirement income for all
  3. Public pensions provision must remain sustainable
  4. (There should be) Fair outcomes for women and carers
  5. A better understood system
  6. To go forward, where possible, in consensus


Obviously the fifth point about people understanding the pension system better is going to be queered up a bit with the level of complexity being introduced to the system on A-Day. Personally, I wouldnít have set my sights any higher on that point than hoping that at least some of the people running pension schemes and as many advisers as possible get the hang of this new stuff before Joe and Josephine Average get hit by it, but stillÖ

The Government reckons that it will need to consider a number of important questions as it sets about this root and branch reform of our pension system including:

  • Whether a residence-based eligibility for the Basic State Pension could be a practical and cost-effective way forward?
  • Whether National Insurance rules and qualifying conditions could be modernised to create entitlements to the Basic State Pension that better reflect todayís society?
  • Whether we could harness the power of the State through local and central collection mechanisms to make it easier and cheaper to save. Might running such a product on an auto-enrolment basis help more people save?

If the first two questions mean that the Government can now see itself at least considering raising the Basic State Pension to something like £105 a week and doing away with the system of Pension Credits then I suppose weíd all breathe a sigh of relief. I donít think anybody today really thinks we have a snowball in Hellís chance of distributing pensions more widely while the very structure of the State scheme and the prevalence of means-testing acts so strongly against us. It would be good if the Government eventually comes around to that widely-shared view too, but it does seem odd to me that weíre now talking about this just as weíre publishing a Pensions Act and completely revamping our pension tax system.

Iím not sure I like the sound of the last question posed here by Government though. Using the power of the State to make things easier and cheaper has got ďUh - Oh!Ē written all over it as far as Iím concerned. Hopefully, removing the barriers to sensible distribution of pensions will bring the costs down enough so that this sort of State intervention will prove unnecessary.

Overall, I guess this announcement means that everythingís still up for grabs as far as long-term pension reform is concerned, but I suppose we should be glad that the important issues that are bedevilling our pension system are finally now part of the political debate. Even if it does seem a bit late in the day.

Iím going to get off now and have another trawl around the Government websites to see what new stuff is coming out today. I hope I havenít missed any important new announcements while Iíve taken time out to write this BeeLine!

Steve Bee
25 February 2005

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