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BeeHive  >  BeeLines  >  What's Buzzing in Pensions - Late May 2006

What's Buzzing in Pensions - Late May 2006

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I’m not being funny but was last week a hell of a week pension-wise or what?  For the first time ever there was so much stuff knocked out by the government guys and commentators that we’ve had to have a serious cull of it all so we can fit a good representative selection in this bumper BeeLine.  I’ve included the usual written and oral answers to questions posed in the House and added some of the material from the various debates and a smattering of press releases to complete the mix.  It can either be read as a narrative, or be dipped into for instruction or even fun.  It doesn’t matter what you want it for; that’s up to you.  The whole point is to keep you up there with the developments in the sadly fast-moving world of pensions.  It’s all part of the service from your friendly neighbourhood BeeHive, so just enjoy it…..

 Steve Bee

31 May 2006

 

Documents

Treasury Report on NPSS

House of Commons - Treasury - Fifth Report

White Paper

DWP - Security in retirement: Contents

 

House of Commons Written Answers1

22 May 2006

Pension Age

Mr. Laws: To ask the Secretary of State for Work and Pensions what his estimate is of the cost savings from raising the state pension age to (a) 66 years by 2030 and (b) 67 years by 2040; and if he will make a statement. [70292]
James Purnell: If state pension age was raised from 65 to 66 in 2030 the estimated net savings for that year would be £5 billion. If state pension age increased from 65 to 67 in 2040 the estimated net savings for that year would be £11 billion. Figures are quoted in 2006-07 prices, rounded to the nearest £100 million, and are based on current policy.

22 May 2006 : Column 1487W

Mr. Laws: To ask the Secretary of State for Work and Pensions what the annual savings from raising the women's pension age from 60 to 65 years are in each year from 2010 to 2030; and if he will make a statement. [70293]
James Purnell: The information is in the table.

United Kingdom, 2006-07 prices

Net savings in pensioner spending (£ billion)

2010

0.4

2011

1.4

2012

2.2

2013

3.2

2014

4.1

2015

5.1

2016

6.0

2017

7.0

2018

8.0

2019

9.0

2020

9.6

2021

9.9

2022

10.3

2023

10.6

2024

10,9

2025

11.2

2026

11.4

2027

11.5

2028

11.7

2029

11.8

2030

12.0

Notes: 1. All figures are given in 2006-07 prices and are based on current policy. 2. Figures are given in £billion, rounded to one decimal place. 3. The figures assume that an increase in the state retirement pension age for women would correspondingly increase the qualifying age for benefits such as pension credit, housing benefits and winter fuel payments. However, there would also be extra costs arising from working age benefits such as incapacity benefit, income support, jobseeker's allowance, bereavement benefits, and housing benefits. The net effect of these changes is shown in the table. 4. The figures cover expenditure on the bigger spending benefits only. Administrative costs, and any revenue effects, have not been considered. Source: The figures are based on DWP long-term projections of United Kingdom benefit spend consistent with the budget report 2006.

HC Deb 22 May 2006 cc1486W-1487W

 

House of Commons Oral Answers2

24 May 2006

Prime Minister's Questions

Q2. [73143] Julie Morgan (Cardiff, North) (Lab): What can my right hon. Friend say to my constituent, Mr. John Flynn of Llanishen in Cardiff, North, who worked for Allied Steel and Wire for 30 years and will retire next year at 65, when he will receive a works pension of £80 instead of the £800 that he was expecting and had contributed to for 30 years? Can my

24 May 2006 : Column 1473

right hon. Friend extend the financial assistance scheme to help Mr. Flynn and all the other Allied Steel and Wire pensioners?

The Prime Minister: As I think I said in March, there is a strong and compelling campaign for the review of the financial assistance scheme. I said then that we would expedite it: we have done so and my right hon. Friend the Secretary of State for Work and Pensions will make a statement tomorrow on the pensions White Paper that will also deal with that issue.

HC Deb 24 May 2006 cc1472-1473

 

24 May 2006

Prime Minister's Questions

Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): Does the Prime Minister think it right that only 30 per cent. Of women reaching state retirement age are entitled to a full state pension? That compares with 85 per cent. of men.

The Prime Minister: No, and that is one reason why it was so important to have the Turner commission and report. Tomorrow, my right hon. Friend the Secretary of State for Work and Pensions will set out the Government's view of the long-term pension framework for the future. However, my hon. Friend is right to say that many women have not built up their pension contributions because they have been unable to work, perhaps because they have had to care for someone. That is precisely one of the matters that my right hon. Friend will address tomorrow.

HC Deb 24 May 2006 cc1474

 

House of Commons Debates3

25 May 2006

Pensions Reform

Pensions secretary John Hutton on Thursday addressed the Commons, outlining the proposals in his pensions reform white paper.

In the debate which followed, opposition members broadly offered support for the reforms, praising the work of the Pensions Commission.

Shadow pensions secretary Phillip Hammond criticised Gordon Brown’s insistence that the linking of state pension to earnings be “subject to affordability”.

Hammond also made clear the five criteria against which the opposition would assess the success of the reforms: delivery of pensioner dignity; fairness; affordability; simplicity; and the degree to which it promotes personal saving.

Liberal Democrat pensions spokesman David Laws also criticised the decision not to establish a permanent Pensions Commission.

In the Lords the statement was repeated, followed by a debate in which Lord Skelmersdale (Con) raised similar concerns over the clause of affordability.

In his speech, Hutton outlined the following key points:

  • State retirement age to rise from 65 to 66 from 2024 and then to 68 from 2044.

  • The basic state pension is to be re-linked to average earnings during the next parliament.

  • The re-linking is scheduled for 2012 but could be delayed if there are problems with the affordability.

  • There will be a new National Pensions Savings Scheme (NPSS) to make it easier and cheaper to save.

  • The NPSS will be introduced from 2012, or later if the re-linking of pensions to earnings is also delayed.

  • Employees will be automatically enrolled into the NPSS but can opt out.

  • Employers will contribute three per cent to the NPSS, employees four per cent with a further one per cent coming in the form of tax relief.

  • There will be support for all employers during the introduction of compulsory employer contributions, with their contributions phased in over three years.

  • The number of years of contributions needed to qualify for the basic state pension to be reduced to 30 from 39.

  • There will be a new weekly credit for those caring for children.

  • There will be a new contributory credit for those caring for severely disabled people for 20 hours or more per week.

  • The initial contribution conditions for the basic state pension will be abolished so that caring for children or the severely disabled will build entitlement without having to make a minimum level of contributions.

  • By 2010 it is estimated that 70 per cent of women reaching state pension age will receive the full basic state pension.

  • By 2050 only one third of pensioners will be eligible for means-tested pension credit.

  • The state second pension will be reformed so that it becomes a simple, flat-rate weekly top-up to the basic state pension.

  • The current system of "contracting out" from the state second pension will be abolished for defined contribution schemes.

  • The state second pension will become completely flat rate around 2030 or shortly afterwards.

25 May 2006

 

Press Releases

Liberal Democrats

22 May 2006

Pension affordability must start at the top – Oakeshott4

Liberal Democrat Pensions Spokesperson Lord (Matthew) Oakeshott has today attacked Gordon Brown for arguing that higher basic state pensions and full implementation of the Turner Report are “unaffordable”.

Lord Oakeshott said:

“The pension package of cabinet ministers is beyond the wildest dreams of most people.

"Gordon Brown personally benefits from one of the most generous pension schemes ever put together. The Chancellor's pension pot has a capital value of £1.8m and the cabinet's pension rights are worth £25m.

“If Mr Brown takes over as Prime Minister his pension entitlement will rise from £53,000 a year to £123,000 a year. Cabinet ministers can retire at 60, if they have been MPs for 20 years, on a pension with unlimited inflation linking for life.”

 

Federation of Small Businesses

20 May 2006

FSB says 13 million employees relying on right pensions solution5

The Federation of Small Businesses (FSB) today urged all parties to keep the needs of small employers and the self-employed in mind when deciding the future of UK pensions provision.

Small firms employ thirteen million people - 58% of the private sector workforce - and contribute over half of UK GDP. Therefore, an ill-considered decision for small businesses could seriously harm the economy.

The UK’s largest business organisation called on the Government to consider in particular the impact that compulsory employers’ contributions would have on small firms as it prepares to publish its White Paper.

The FSB met the Pensions Minister James Purnell MP to discuss the matter and the key issues covered were:

  • That individuals should take responsibility for their own pensions. The FSB agrees that the employer may assist if they are able to, but that the fundamental decision to save for retirement should be with the individual.
  • That compulsory pensions contributions of 3% for employers will have a significant financial impact on many small businesses – any such proposals must address the needs of small businesses and soften the blow for them.
  • That funds raised by any new scheme must be ring-fenced for pensions and not just put into the Government pot – this would be regarded by firms as another tax on business
  • That there should be a minimum threshold of at least six months before an employer would need to contribute to an employee pension.
  • That, as a matter of fairness, the Government must have the courage to tackle public sector pensions to ensure greater consistency between public and private sector pensions.
  • That the FSB supports restoring the earnings link to the state pension to allow people to support themselves in old age.

Mike Cherry, FSB National Pensions Spokesman, said:

“It is clear to everyone that the time to act on pensions is now. However, the focus must be on the individual to provide for their old age. Asking small businesses to contribute 3% into staff pensions would be a great financial burden for them to bear.

“The Government must recognise this and provide an effective solution to soften the blow for small employers. The costs of compulsory employer contributions could easily outweigh the benefits if small firms are forced out of business – and their staff out of work - by this increased financial contribution.

“We look forward to working with the Government on the proposals in the White Paper to ensure that the economy is not rocked back on its heels by pensions proposals that do not defend the interests of small businesses and their employees equally.”

 

Liberal Democrats

24 May 2006

New pensions system must not be built on sand6

Commenting on Thursday’s expected White Paper on Pension Reform, Liberal Democrat Shadow Secretary of State for Work and Pensions, David Laws MP said:

“The Government must ensure that it does not create a new pensions system built on sand, which will need further wholesale reform in the near future. We will not create a stable and sustainable pensions system unless the Government cuts the number of pensioners on means testing.

“New figures obtained by the Liberal Democrats show the number of pensioners eligible for Pensions Credit are now higher than Lord Turner believed and by 2012 over half of all pensioners will be facing means testing.

“Without dramatically reducing the levels of means testing and making a decent State Pension available to all, the National Pensions Saving Scheme cannot succeed.

“With the retirement age likely to increase to 68 by 2050 the Government should not only restore the earnings link but also raise the state pension to produce a decent minimum level of income and good incentives to save.

“The Government must also tackle the issue of Public Sector Pensions. They should set up an Independent Commission to make recommendations on how to ensure that they are both fair and affordable.”

 

Conservative Party

24 May 2006

Pensions stealth tax on middle income earners7

Millions of hard working taxpayers who contribute to the State Second Pension scheme face the prospect of being penalised by a new stealth tax being planned by Labour, Conservatives have revealed.

The Government is expected to freeze the maximum pay level on which second pension rights accrue through National Insurance contributions - but have no plans to freeze the amount on which National Insurance contributions are payable, Shadow Work and Pensions Secretary Philip Hammond has disclosed.

He said the result is that by 2033, when the second pension will become a flat rate benefit, people earning more than the equivalent of £18,000 a year now will be paying contributions on part of their salary for which they receive no pension benefit in return.

Details of the latest tax snatch being planned by the Chancellor were discovered buried in the small print of the Turner Report, the document expected to form the basis of the Government's Pensions White Paper due for publication within hours.

Commenting on the revelations, Mr Hammond said: "This amounts to another stealth tax on middle income earners. The Government has drawn attention away from these changes to the State Second Pension which will hit middle income earners very hard. Even someone on £18,000 will feel the bite of this stealth tax."

He protested: "At present, nearly half of employee National Insurance contributions go towards an earnings-related second pension. Under the Government's proposals, that contribution will become a straight tax on income above about £18,000 a year."

Meanwhile the current right which enables anyone to "contract out" of the State Second Pension, and take their contribution to it into a private scheme, will also be abolished. So the 5.3% second pension contribution above the current £34,185 upper limit for second pension accruals effectively becomes a tax, as the limit for contributions - but not the limit for accruals of pension rights - increases inline with earnings.

 

Conservative Party

24 May 2006

Hammond: Almost 5 million women to miss out on Government pension promise8

The Government’s heavily trailed proposals to improve state pension provision for women will leave millions of women no better off, Conservatives can today reveal.

The new rules, where only 30 years of National Insurance contributions are required for a full basic state pension, are expected only to benefit women retiring after an arbitrary date in 2010. This means that women retiring before that date, and those already retired, will not benefit at all.

  • An estimated 3.8 million women pensioners in the UK do not receive a full state pension and will not benefit from these changes.
  • Between now and 2010 an additional 1.1 million women will retire on less than a full state pension and will not benefit from these changes.

Philip Hammond, Shadow work and Pensions Secretary, commented:

“It does not seem fair that a woman retiring on a 1st April 2010 will get a full state pension based on 30 years’ contributions, but that a woman retiring on 31st March with the same contributions will be condemned to a lifetime on a partial pension.

“This announcement offers nothing to the millions of women currently receiving inadequate state pensions or to those who will retire in the next few years.

“Surely the Government has its priorities wrong? Tony Blair and Gordon Brown are happy to spend billions of pounds of taxpayer’s money to allow public sector workers to continue to retire at 60 while offering millions of women no help at all.”

Notes to editors

  • It has been reported that, from 2010, the Government will reduce the number of National Insurance Contribution years required for a full basic state pension from 44 for men and 39 for women to 30 years for both (Financial Times, 18 May 2006)
  • There are 53 per cent of retired women in the UK who are not currently in receipt of a full basic state pension in their own right (Hansard, 14 Nov 2005 : Column 1009W). The Government Actuary’s population projections for 2004 show that in 2005 there were approximately 7.1 women above state pension age in the UK.
  • This means that there are approximately 3.8 million retired women not receiving a full basic state pension in their own right in 2005.
  • The GAD’s population projections show that 1.95 million women are set to reach state pension age between 2006 and 2010.
  • A recent report from the DWP says that only 30 per cent of newly retired women will benefit from a full basic state pension in 2005-6 (Women and Pensions: the evidence, DWP, November 2005, p. 6). A Parliamentary Answer from Stephen Timms, former Pensions Minister, states that this proportion will increase to 50 per cent by 2010. (Hansard, 17 Nov 2005 : Column 1475W).
  • If we assume that eligibility for state pension will increase at 4 per cent a year from 2005 to 2010, this means that 1.1 million women will retire and not receive a full basic state pension between now and 2010.
  • In total, this means that out of 9 million women retired or about to retire, 4.9 million women will miss out on the Government’s pension promise 

 

Trades Union Contract

25 May 2006

TUC on pensions white paper9

Looking forward to the publication of today's White Paper on the future of pensions, TUC General Secretary Brendan Barber said:

"If the advance reports are to be believed, today's White Paper on pensions will be a real breakthrough. It will be the best opportunity to forge a new pensions consensus that we are likely to get.

"The TUC has always had three campaign priorities in the pensions debate - index linking the state pension to earnings, compulsory employer contributions and urgent help for women. It looks like we will be able to put a tick in each of these three boxes later today.

"This is because the government has handled this debate sensibly. There has been an expert commission drawing from employer, union and expert backgrounds. This has led to a real national and well-informed debate, and genuine consultation. No-one can complain that they could not contribute to the debate and have their ideas tested, even if their views do not prevail today.

"Employer lobbyists have been busy across Whitehall arguing against compulsion, just as the insurance industry has been opposing the low cost National Pensions Savings Scheme model. But it looks like they have lost. This is because this has been serious policy making without short term headline chasing or deference to vested interests, and the White Paper will be all the better and the more sustainable for that.

"Of course we will need to study the small print when the White Paper is published, and unions will be disappointed at proposals that the state pension age should increase over time and that there is not some more help for today's pensioners. We will look closely at the timetable for the state pension age and what the government intends to do about the inequality in mortality rates that still persists.

"But I am optimistic that the thrust of this White Paper will represent a victory for union and progressive campaigning. It looks set to be this government's third term historic achievement."

 

Liberal Democrats

25 May 2006

Pensions must not divide Britain – Oakeshott10

Liberal Democrat Pensions Spokesman, Lord Oakeshott today attacked the Government’s “mean and timid” Pensions White Paper for ignoring the vast divide between generous public sector pensions and millions of pensioners who have to rely on means-tested benefits.

Lord Oakeshott said:

“A MP reaching sixty this year can retire on a fully index-linked pension with a current capital value of £1.22 million after just 26 years and 8 months’ service.

“Top civil servants do even better. Lord Turnbull has just retired as Cabinet Secretary with a pension of over £100,000 a year, which could cost £3.25 million to buy from a private sector provider. He recently stated the public sector pension deal could not be defended.

“These vast pensions are simply unaffordable for ordinary taxpayers. The Liberal Democrats demand an Independent Commission to get a grip on the public sector pension bill.”

 

Federation of Small Businesses

25 May 2006

FSB welcomes debate on pensions11

The FSB today welcomed the Government’s approach to tackling the future of UK pensions.

The UK’s biggest business organisation noted the Government’s assurance ahead of today’s white paper that small businesses would get help to cope with possible compulsory contributions to a national pensions saving scheme.

However, the FSB urged legislators to put measures in place to encourage individuals to take responsibility for their own retirement.

Mike Cherry, FSB National Pensions Spokesman, said:

“Everybody recognises the need to tackle the future of pensions and the Government has done well to grasp the nettle on this issue.

“The Government’s stated aim has been for individuals to take responsibility for their own futures and we hope this is reflected in the final settlement.

“Our discussions at number 10 Downing Street today saw all the business organisations united in their concern about the impact the proposals would have on small businesses and their employees.

“Good communication and simplicity is the key to making this work. We welcome the time the Government is giving to this debate and look forward to being fully involved in representing the views of small businesses.”

 

Labour Party

25 May 2006

Landmark day on pensions12

Heralding today's announcement on pensions, Prime Minister Tony Blair said in Downing Street: "This is a long-term pensions package which gives us the best opportunity of establishing a consensus on how we allow people to save for retirement, for employers and individuals to play their part.

It’s a landmark day and I think and hope that the package will receive a broad welcome across, I hope, the political spectrum and among pension providers.

It has at its foundation a strong state pension linked to earnings and a way for people to top-up the state pension with their own private savings.

The idea is to make this something that will last for this generation and generations to come.

It’s a chance of having a strong, sustainable, workable, affordable way of people saving for their retirement."

Pensions Secretary John Hutton will announce the full package of measures to parliament this afternoon.

 

Investment Management Association

25 May 2006

IMA chairman – the city’s role in solving the pensions crisis13

Speaking at IMA’s AGM dinner last night, the Associations' Chairman, Simon Davies said:

“The recognition of the importance of the City of London in this year’s Budget was welcomed by the asset management industry. In order to ensure business remains in the UK, however, it is vital that our tax and regulatory regimes remain competitive.

IMA will continue to strive to ensure that we help to create and maintain an effective and fair regulatory environment in which our members can do business, and in doing so, promote asset management as a valuable contributor to the UK economy.”

Mr Davies went on to say:

“As we eagerly await the publication of the Government’s White Paper on Pensions, we see a clear role for the City in helping to resolve the UK pensions crisis. I believe that the pensions arena is one where consumers stand to benefit from fund managers’ skills and part of our work this year concentrated on ensuring that the post A-Day regulatory environment is one in which fund managers can put their products in front of consumers.”

Looking to the future Mr. Davies discussed the challenges which lay ahead for the industry indicating that the Markets in Financial Services Directive (MiFID) and the FSA’s Treating Customers Fairly initiatives would feature highly on IMA’s agenda for the coming year. Mr Davies concluded:

“The agenda is very wide. But IMA will play a full part in tackling these issues with the aim, not only of ensuring that the industry’s needs are catered for, but also that we build a savings environment for the 21st century which addresses the needs of consumers and ensures that they will be able to invest with confidence.”

 

Liberal Democrats

25 May 2006

Pensions white paper is only half the solution - Laws14

Commenting on the Pensions White Paper, Liberal Democrat Shadow  Work and Pensions Secretary, David Laws MP said:

“Today’s proposals take Government policy in the right direction, but they provide only a half-solution to Britain’s pensions problem.

“This package does little for today’s pensioners, and leaves Britain with a state pension system which is still complex and excessively reliant on means-testing.

“Gordon Brown’s ‘get out clause’ on restoring the earnings link means that the Government wants to introduce higher state pension ages 5 years before Lord Turner proposed, while delaying the introduction of the earnings link by up to 5 years.

“There should be no increase in the state pension age without clear and bankable guarantees on the earnings link.

“The reliance on high levels of means-testing, with between a quarter and a half of pensioners still being means-tested, will undermine incentives to save, and fails to provide a decent minimum income to keep all pensioners out of poverty.

“The Government’s decision to reject Lord Turner’s proposals on a residency-based pension means that many people, including many women, will still only receive a part-pension.

“The Government also continues to duck the challenge of Public Sector Pensions Reform. The Government should establish an Independent Commission to bring forward proposals for reform.

“There is much in the new pensions architecture which is welcome – the restoration of the earnings link, the acceptance of a rising state pension age, and the broad approach of the National Pension Savings Scheme.

“The Government is building its future pension system on the sand of a totally inadequate basic state pension. The continuation of complexity, mass means-testing, and a low basic pension threatens to undermine today’s settlement. The Government’s proposals will fail to deliver the final and settled solution which we have all sought.”

 

Department for Work and Pensions

25 May 2006

Historic settlement for pensions challenge15

A bold new pensions settlement designed to enable people to plan ahead and save more for their retirement was set out today in the Government's White Paper on pensions reform.

The proposals are for the future and will provide the infrastructure for the system for the next forty years.

Speaking in Parliament today, John Hutton, Secretary of State for Work and Pensions said:

"Today's White Paper seeks to entrench a new pensions savings culture where future generations can take increasing personal responsibility for building their retirement savings.

"The reforms represent a comprehensive, integrated package of reform. I believe it can lay the foundation for a new and lasting consensus on a long-term resolution of the pensions challenge we face as a country."

Key elements of the White Paper include:

  • New low cost savings scheme in which employees will be automatically enrolled. Employers will make matching contributions while the employee chooses to remain in the scheme. This will create a new savings culture in Britain; up to 10 million people will be saving in these personal accounts and most of the money paid in will be new pension saving. By retirement, their pension funds could be worth up to around 25 per cent more because of lower charges;

  • These measures to make it easier to save will be supported by a higher fairer state pension re-linked to earnings. This will mean that by around 2050 anyone who has been in employment or caring throughout their working life will get around £135 a week or more in retirement in state pension. This is over £20 a week above the guaranteed income level.

  • Measures to help smooth the introduction of this reform for business. Employer contributions will be phased in over at least 3 years and the contribution rate will be fixed in primary legislation. In order to minimise the burden on the smallest businesses, we will consult on additional transitional support.

  • We will ensure the new settlement is sustainable over coming decades by gradually raising the state pension age in line with life expectancy. The state pension age will rise to 66 over two years between 2024 and 2026 and then from 66 to 67 between 2034 and 2036 and then to 68 in 2044 to 2046.

  • The package of reforms continues to protect the poorest pensioners from poverty. It will ensure that the least well off continue to share in the growing wealth of society by increasing the guarantee credit in line with earnings in the years ahead.

  • Unfairness in system - which affects women in particular will be addressed by modernising the contributory principle for the basic state pension and the state second pension so it rewards social contributions equally with paid contributions. This will be done by: cutting to 30 the number of qualifying years needed to receive a full basic state pension and improving the system of credits. This will improve the pension provision for those who care for children as well as severely disabled people. In 2010, 70 per cent of women reaching State Pension age will be entitled to a full basic State Pension, compared to 30 per cent now.

  • Abolishing the contracting out for defined contribution schemes will reduce administrative complexity and remove a key source of confusion for individuals.

Alongside this today, the Government also announced the outcome of the review of the Financial Assistance Scheme (FAS).

James Purnell, Minister for Pensions Reform said:

"It was this Government which brought forward the Financial Assistance Scheme as we recognised the real hardship many people faced in retirement through no fault of their own.

"Having reviewed the scheme we are pleased to increase the cover from 3 to 15 years. We are now able to extend assistance to an additional 22-30,000 people on top of those helped by the current scheme. This represents a substantial additional investment into the scheme, taking the total cash funding of the FAS from £400 million to over £2 billion."

The proposals for reforms set out in the White Paper are informed by an extensive programme of government consultation with key stakeholders and the National Pensions Debate. The Government will now begin the formal consultation process, continuing to engage with stakeholders and members of the public.

We are confident that it meets the five key tests we have set for reform - of promoting personal responsibility, affordability, simplicity, sustainability and fairness.

 

Pensions Commission

25 May 2006

The Pensions Commissioners welcome White Paper16

The Pensions Commissioners today welcomed the government's White Paper on pensions, and said that it represented a major opportunity to build consensus around a new pensions settlement which could last.

Adair Turner, former Chairman of the Commission, said:``The White Paper commits British pension policy to the three key policies which were at the centre of our recommendations: first, state pension provision which increases over time in line with the nation's prosperity, limiting the extent of means-testing, and made affordable by a steady rise in the state pension age as people live longer. Second, a better deal for women. Third, automatic enrolment into a new system of low cost personal pension savings accounts with provision for an employer contribution. We hope that this overall architecture can command support from all parties, whatever the debates about details.''

Commenting on key points in the White Paper, the Commissioners said:

  • “We strongly welcome the commitment to the principle that both the Guarantee Credit and the Basic State Pension should rise over the long-term in line with average earnings. While we recommended that the BSP's indexation to earnings should start in 2010, the delay to 2012 represents an acceptable compromise given affordability concerns. But a longer delay could undermine the balance of the overall policy package.''

  • “The package of improvements to the contributory system (which include a reduction to 30 in the number of years of contribution required to secure a full Basic Pension plus improved treatment of carers) will make a big difference to many people, in particular women. While the Commission recommended a residency basis for the build up of pension rights, the White Paper proposals will deliver significant improvements.

  • ``The White Paper rightly sets out the principle that the state pension age should rise over time to keep roughly stable the proportion of adult life spent receiving a state pension. The detailed implementation of this principle should reflect future trends in life expectancy. As the White Paper acknowledges, detailed policies (e.g. on the age at which the Guarantee Credit becomes available) may need to be adjusted to protect the position of lower socio-economic groups. And beyond the initial increase in SPA to 66 we believe that flexibility should be preserved to adjust the timing of subsequent increases in the light of latest life expectancy forecasts which may change over time. The government proposes periodic reviews of these issues. The Commissioners believes that the timing of these reviews should ideally be preset in advance (e.g. every 4 years).

  • ``We welcome the government's commitment to the three key features of the Commission's proposed new private pension saving system: automatic enrolment, organisational arrangements which ensure low cost provision, and a compulsory matching employer contribution set at a minimum 3%. A package of measures to mitigate the initial cost impact on small businesses will be an important implementation detail. And the Commissioners continue to believe, as the White Paper tentatively concludes, that a single national scheme, rather than a multi-provider model, will deliver lowest cost, and thus highest possible pensions to savers.
 
 

Confederation of British Industry

25 May 2006

CBI welcomes pensions white paper but financial support package vital to minimise damage to employers17

The CBI today welcomed the Government's White Paper on pensions but expressed deep disappointment at its decision to press ahead with compulsory employer contributions.

CBI Director-General Sir Digby Jones said:

“The business community welcomed the Pensions Commission’s final report and the White Paper provides a sustainable long-term settlement on pensions.

“Raising the state pension will remove disincentives to save – but the price for a better pension is a higher state pension age, which the Government rightly recognises will have to rise gradually over the long-term.

"We must not see the benefits of restoring the earnings link and reducing means-testing introduced without the nation understanding they must pay for it with the raising of the state pension age.

“Business also supports a new national savings scheme for those on low incomes and without access to an employer’s occupational scheme. We must get the young and the low paid into the world of saving.

“But there will be anxiety amongst the business community that the Government is forging ahead with compulsory employer pension contributions despite the potential damage it could inflict on firms, particularly smaller ones.

“Compulsion will cost employers £2.3bn and they will need help in managing this burden. At the very least the Government must commit to a package of financial support for small firms to help them adjust and absorb the additional costs.”

The CBI has developed a range of proposals for financial support to help small firms make pensions contributions, at an estimated cost of £500m per year.(1)

The Pensions Commission has argued similarly that the Government could provide close to £600m in financial support to firms, by paying the first £500 of employers’ pensions contributions, benefiting smallest firms most.(2)

Sir Digby continued: “The proposal to put the three per cent employer contribution on the face of the Bill offers some reassurance to firms on how compulsion will be introduced. This should now be seen as the final settlement – and not the start of a negotiation.

"Business will fear, with justification in view of past performance, that trade unions will immediately put pressure on a Government which they financially support to ratchet up the three percent level. It is for the unions to convince employers otherwise.

“The Government obviously realises we’re entering uncharted waters. Phasing-in compulsion could help many employers manage the change – but the Government must go further. Without a meaningful package of financial support hard-pressed small firms will be left high and dry at the cost of jobs of the very people this was designed to help.

"What a lost opportunity that the Government did not set a better example with its own employees, who will still be able to retire at 60 on a full and generous pension, with private sector employees working longer and harder to pay for it.”

 

Age Concern

25 May 2006

Our response to the government’s white paper on pensions, published today18

Gordon Lishman, Age Concern’s Director-General, said:

“The Government has hit the target but missed the bullseye. This White Paper has delivered a win for future pensioners but is off the mark for today’s.

“Women and carers are the clear winners today. For too long, women have been penalised by an outdated pensions system, designed for the world of the 1940s not the 21st century. We are absolutely delighted that the Government has finally listened to our calls for a fair deal for women by proposing a more flexible carer’s credit and a reduction in the number of years needed for a full state pension. These changes should also be introduced retrospectively to those already retired with incomplete records.

“We also welcome the commitment to set up a new national pensions saving scheme, which is essential in making saving pay for people on low and modest incomes.

"If State Pension Age is going to rise in order to fund a better state pension, we need to see a transformation in the workplace to enable older workers to continue to work if they want to, as well as targeted programmes to support those who cannot work. The Government must ensure that inequalities between rich and poor are not exacerbated by this reform.

“But this has to be a settlement for all generations. Unless the Government intervenes quickly, the real value of the basic state pension will fall to a dismal £72 by 2012. Today’s pensioners will have to wait a long time to see any gains from this new settlement. At the very least, the Government should make the link between Pension Credit and earnings statutory so that current pensioners don’t get poorer the longer they live.

“We now need an ongoing Pensions Commission which can advise government on the success of the new measures and any new steps which will be needed to ensure we can all look forward to a retirement free of poverty.”

 

Conservative Party

25 May 2006

Certainty needed on Pension Reform19

Conservatives have welcomed key aspects of the Government's long-awaited pension reform plans, but have demanded a re-examination of others.

Shadow Work and Pensions Secretary Philip Hammond expressed support for moves designed to restore the earnings link and begin to tackle the unfairness suffered by women; but insisted that the deal enabling public sector workers to retire at 60 must be re-examined.

In a statement to MPs, Work and Pensions Secretary John Hutton announced that the basic state pension will once again be linked to average earnings during the course of the next Parliament, while the state retirement age will be raised to 68 by 2044, and a National Pension Savings Scheme will be introduced with automatic enrolment for employees, together with the right to opt out.

He claimed in a Commons statement that the comprehensive shake-up would help restore the savings culture and encourage existing and future people to build up funds needed for retirement.

Responding, Mr Hammond welcomed the intention to restore the earnings link and curb the growth of means-testing, as well as other measures addressing the unfairness suffered by women in the present pensions system. "And we will engage in the debate around the detailed arrangements for the National Pensions Saving Scheme," he said.

But the Conservative spokesman criticised the uncertainty caused by Gordon Brown's declaration that the restoration of the earnings link in 2012 was subject to "affordability", and he warned that the reforms affecting women did not go far enough.

"Over a million women will retire between now and 2010, without a full contribution record and therefore will not get a full basic state pension. Add to them the 3.8 million women already retired on a partial state pension, and we have nearly 5 million women being bypassed all together by these changes," Mr Hammond said.

He also accused Mr Hutton of ducking the key issue of public sector pensions, and asked how Labour ministers could "look the British public in the eye" and tell people to work until 68 before retirement, when they have already caved in to union pressure and granted state sector workers the right to retire at 60 for the next 40 years.

He declared: "Public sector workers deserve fair treatment - the same as everyone else. But they, too, must share in shouldering the burden of adjustment. In the interests of fairness the Government must re-open public sector pensions settlement - if it fails to do so, a future Conservative Government cannot be bound by a deal that is based on favours, not fairness."

Mr Hammond added: "It is disappointing that these proposals are not being delivered on the back of a pre-constructed cross-party consensus. We believe that it is essential that lasting pension reform is built upon consensus around a settlement that can last for fifty or sixty years, surviving the vagaries of political fortune.

"Whatever our separate party political motivations, it is now our duty as elected representatives to do what is right for the long-term interest of Britain."

 

Institute of Chartered Accountants

25 May 2006

Institute welcomes Pensions White Paper20

Speaking in response to the publication today of the White Paper “Security in Retirement: towards a new pensions system”, Eric Anstee, Chief Executive of the Institute of Chartered Accountants in England & Wales said:

“We welcome the white paper as an urgently needed step forward in addressing long term issues around retirement provision. In a poll of our members’ views on the Pensions Commission Report, the vast majority were in support of auto enrolment in pension schemes with compulsory contributions from employers. Our members felt that employers should contribute to any national pensions savings scheme but that this scheme should be administered by the private sector. Members also supported the restoration of a link with earnings.

“We have said all along that long term stability is needed for pensions planning and tough decisions need to be taken. We are committed to working with government to ensuring that this white paper is the foundation for securing a long term solution to the challenges we will face – a solution that people can have confidence in.”

In response to specific proposals, the Institute’s survey of 943 members involved in pensions schemes, including 371 Finance Directors/CFOs, revealed that:-

  • 81% agreed that means testing was a disincentive to long term savings
  • Tax relief on pensions (85%), tax relief on savings (72%) and greater certainty on future value of annuities (63%) were seen as the most effective incentives for long term savings. Equity release on pensions (31%) and tax relief on assets (38%) were seen as the least effective incentives
  • Two thirds (69%) preferred NIC-based pensions rather than a “citizen’s pension” based on residency
  • 57% favoured earnings linked as opposed to RPI linked pensions
  • 42% of CFOs or FDs would adjust salaries due to compulsory contributions compared to 41% who wouldn’t
  • Employers (61%) favour private administration of the National Pensions Savings Scheme (NPSS) though trustees and other advisors are more evenly split
  • The majority support the creation of an independent pensions commission as a way of restoring confidence in the pensions system.

 

ippr

25 May 2006

ippr reaction to pensions white paper21

Richard Brooks, ippr associate director said:

“Today's pension reforms won't affect current pensioners very much, but these are long term proposals that will be crucial for the current workforce. The big question is whether the public see this as a lasting settlement around which they can plan their own savings. If they do, then public support will force future governments to respect today's settlement.

"ippr’s pension research in 2002 laid the foundations for these recommendations, and was first to suggest the basic deal that the Government is seeking to strike - a more generous state pension in exchange for a longer working life. The Government's proposals are fundamentally sound - we see the glass as two-thirds full."

 

Transport and General Workers Union

25 May 2006

T&G on Pensions White Paper22

Commenting on the Pensions White Paper, Transport and General Workers Union general secretary Tony Woodley said: "The government deserves two fairly rousing cheers for the policies outlined in the pensions white paper.

"The decision to introduce the National Pensions Savings Scheme - with compulsory contributions from employers to back up worker and government contributions - is to be welcomed.

"And the eventual restoration of a link between earnings and state pensions is something for which we have campaigned over many years. It would be even more welcome if the link were restored earlier.

"Increasing the state pension age is very definitely not a welcome development, however, and we are also disappointed at the lack of help for today's pensioners.

"Measures to end discrimination against women in our pensions system are long overdue, and the government's proposals do go some way to meet that objective.

"The extension of the financial assistance scheme is also to be welcomed, since it will help to bring some protection to workers whose entitlement to a decent retirement has been denied them through the collapse of their pension schemes.

"While we still need to examine the fine print, this much-trailed white paper does seem to show that the government is at least going in the right direction, and has resisted employer pressures to stick with an outdated and unjust pension system."

 

Work Foundation

25 May 2006

The Work Foundation welcomes pensions white paper23

Will Hutton, Chief Executive of The Work Foundation, today welcomed the government's Pensions White Paper. "This is a major reform that will start to redress the balance between generations that has accelerated in recent years.

The Government is to be congratulated for accepting so many of the recommendations of Lord Turner's Pensions Commission. The demise of many company defined benefit schemes and the exclusion of so much of the workforce from decent pension provision is a national scandal that could not continue.

By cutting the number of years it takes to receive a full basic state pension to 30, automatically enrolling everyone into an employer scheme once they join the workforce and making employers contribute to pension pots, as well as employees, are all major steps to reform."

He continued, "Though many will not like the proposal that the state pension age should be raised this is an inevitable trade-off. We live longer.

Many jobs are no longer heavy manual jobs. So for many of us working longer could be good news rather than bad, ensuring a retirement free from poverty.

Progressive employers have nothing to fear from these proposals."

- The Work Foundation is the UK's leading independent research-led consultancy and advocacy organisation committed to creating good work across the UK economy. It believes that by improving the quality of working life improvements in organisational performance will follow.

 

Labour Party

25 May 2006

Our goal is security in old age for everyone24

Labour MP and former Work and Pensions Secretary David Blunkett writes on the pensions white paper announced by the government today

I can understand why the under-30s turn over or switch off every time they read or hear the word pensions.

There’s enough happening in life and enough problems without worrying about money forty years down the track.

But with the number of pensioners set to increase as we live longer and the number of people in work set to fall as fewer children are born, this is a real danger for your generation when you retire unless action is taken now.

The risk is that while those in work fund the retirement of pensioners today, there won’t be enough people in work to do the same for you when you retire.

The fact that the number of people over 100 years old is expected to increase from 9,000 today to 160,000 by 2050 gives some insight into the challenges ahead.

And while there are now four people in work for every one in retirement, it’s estimated that number will have halved to two workers for every pensioner by 2050.

So that’s why the pension reforms we announced yesterday put your generation at their heart.

They are a blueprint for the next 50 years for a fair, simple, affordable and long-term pension system which balances the needs of pensioners today with pensioners in the future.

Our goal is a basic state pension in the future which is a strong foundation for security in old age for everyone.

So from 2012, we want the basic state pension to rise in line with earnings rather than inflation as now so it will reflect our country’s rising prosperity.

And we’ll make sure years spent away from work bringing up children count towards a full basic state pension so women don’t lose out as many do now.

All this will cost a great deal of tax-payer’s money - as has lifting two million existing pensioners out of poverty over the last nine years.

Which is why we have to phase in the changes and balance them with other pension reforms to ensure they stay affordable.

But while the basic state pension will increase faster than it has since the Tories broke the earnings line over 20 years ago, it’s still not going to fund many luxuries in retirement.

If you want, for example, to travel widely when you have all the time in the world to enjoy it, you’ll have to save on top of the basic state pension. And the sooner you start the better.

So we also want to make it easier and more attractive for everyone to save themselves for their retirement.

Even small sums saved now in a pension will make a big difference. The longer you put it off, the more you’ll have to save or spend your retirement worrying about money.
We’ll help by making it easier for all - and particularly those not now in occupational or private pensions - to save more.

It’s not Britain alone which is facing these difficult challenges. All developed countries are. And in many ways, we are much better placed than most.

But it will require hard decisions for everyone - for Government, for business and for individuals.

As we are living longer and healthier than ever before, it will mean over the long-term having to wait slightly longer before you get the state pension.

So by 2050, the basic state pension won’t be paid until you reach 68. This reflects the fact, for example, that men at 65 are expected by then to live 21 more years compared to just 12 years of retirement back in 1951.

If this step wasn’t taken, we simply wouldn’t be able to afford the long-term pensions bill.
If you want to retire earlier, you can. But it’s another reason why you will have to put more money aside in your occupational or private pension to fund it.

One of the great achievements of the last century has been that we are all living longer and more healthier than ever before.

But, because of the challenges of funding old age, this fact is often seen as a problem rather than the success it is.

By putting in place a sustainable, affordable and trusted pension system which encourages people to save, we can celebrate this success by making sure you can look forward to a long and happy retirement.

 

Society of Pension Consultants

25 May 2006

Comments on Turner report from new Society of Pension Consultants President25

Mark Ashworth, President-elect of the Society of Pension Consultants (the body representing most UK pension providers and advisers), has made the following comments on the Turner Report.

Mr Ashworth who takes over as President of the SPC on June 1 said today:-

““We must not make it too difficult for employers with good existing schemes to continue to operate their schemes outside the NPSS. If too many and too onerous conditions are required, then employers will be strongly tempted to cease to provide pensions through existing schemes and will instead opt to provide the minimum required by the NPSS. Employees could suffer seriously as a result.

“On the NPSS the devil will be in the detail, and this will need to be examined carefully.

“Restoration of the link between State pensions and earnings is vital to the success of any reform. We would like this to happen as soon as possible, and as soon as envisaged by Lord Turner.

“If we do not have the foundation of an adequate state pension then any other reform will be compromised by increasing means-testing.

“We fear that the commitment to the State reforms may be too modest: a commitment to do too little and too late.

“We think that it is essential that the Treasury has fully bought-in to reform of the state pension system, and wonder whether it has done so whole-heartedly.”

 

Work and Pensions Committee

26 May 2006

‘Select Committee announces concluding evidence sessions for its Pension Reform Inquiry and asks for additional evidence following publication of White Paper’26

The House of Commons Work and Pensions Committee today announced the concluding evidence sessions for its Pension Reform Inquiry. Details of these meetings are as follows:

Wednesday 7 June 2006 in the Grimond Room, Portcullis House

9.30am Rt Hon John Hutton MP, Secretary of State for Work and Pensions

Monday 12 June 2006 in Committee Room 8

4.15pm Representatives from the Trades Union Congress

and

5.15pm Representatives from the Confederation of British Industry; EEF, the Manufacturers’ Organisation; and the Federation of Small Businesses

Monday 19 June 2006 in Committee Room 8

4.15pm Representatives from the Association of British Insurers; the Investment Management Association; and the National Association of Pension Funds

and

5.15pm Representatives from Citizens Advice and Which?

Please note that all timings are approximate.

The Committee’s inquiry was announced on 8 February 2006. The Committee will accept short supplementary written submissions following publication of the White Paper on Pensions Reform. The deadline for this further written evidence is 15 June 2006, although submissions received by 2 June 2006 will be particularly helpful. Due to the short time available the Committee requests that all submissions should be:

- no longer than 2,000 words

- in Word format with as little use of colour as possible

- emailed to the Committee, where possible including full details and postal address

Material already published elsewhere should not form the basis of a submission, but may be referred to within a proposed memorandum, in which case a hard copy of the published work should be included.

Memoranda submitted to the Committee must be kept confidential until published by the Committee, unless specifically authorised by the Committee.

Sources:

  1. United Kingdom Parliament, Commons Hansard 22 May 2006, Column 1486W - 1487W.
  2. United Kingdom Parliament, Commons Hansard 24 May 2006, Column1472 - 1474.
  3. Lansons Public Affairs – Parliamentary Monitoring week ending 26 May 2006
  4. Lansons Public Affairs – Parliamentary Monitoring week ending 26 May 2006
  5. Federation of Small Businesses National Press Release 20 May 2006
  6. Liberal Democrats News 24 May 2006
  7. Conservative Party News 24 May 2006
  8. Lansons Public Affairs – Parliamentary Monitoring week ending 26 May 2006
  9. Trades Union Congress Press Release 25 May 2006
  10. Liberal Democrats News 25 May 2006
  11. Federation of Small Businesses National Press Release 25 May 2006
  12. Labour Party News and speeches 25 May 2006
  13. Investment Management Association Press Release 25 May 2006
  14. Liberal Democrats News 25 May 2006
  15. Department for Work and Pensions Press Release 25 May 2006
  16. Pensions Commission Press Release 25 May 2006
  17. CBI Press Release 25 May 2006
  18. Age Concern Press Release 25 May 2006
  19. Conservative Party News 25 May 2006
  20. Institute of Chartered Accountants in England & Wales Press Release 25 May 2006
  21. Lansons Public Affairs – Parliamentary Monitoring week ending 26 May 2006
  22. TGWU Press Release 25 May 2006
  23. The Work Foundation Press Release 25 May 2006
  24. Labour Party News 25 May 2006
  25. Lansons Public Affairs – Parliamentary Monitoring week ending 26 May 2006
  26. United Kingdom Parliament Press Notice No. 22 of Session 2005-06 25 May 2006