Register for updates

Sign up to get the latest BeeLines sent direct to your inbox. You can unsubscribe later if you wish.

Related links

BeeHive  >  Press Articles  >  Sting in the tale - Six steps to pension reform

Sting in the tale - Six steps to pension reform

Alan Johnson, the secretary of state for work and pensions, has announced six principles to guide pension reform. 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 also includes the recommendations that the Pensions Commission will make later this year.

It is astounding that we are embarking on a major reform programme for both state and private pensions while the ink's barely dry on the most far- reaching changes to our pension system for generations.

These six new principles to guide pension reform are:

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

Obviously, the fifth point about people understanding the pension system better is going to be difficult, given the level of complexity being introduced to the system on A-day. Personally, I wouldn't 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.

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 today's 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 we'd all breathe a sigh of relief. I don't think anybody today really thinks we have any real 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.

I'm not sure I like the sound of the last question posed here by the government, though. Using the power of the state to make things easier and cheaper doesn't exactly fill me with optimism. 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 suppose this announcement means that everything's still up for grabs as far as long-term pension reform is concerned, but I suppose we should be glad the important issues that are bedevilling our pension system are now finally part of the political debate; even if it does seem a bit late in the day.

Steve Bee

First published in Pensions Week, 7 March 2005