Pensions report

Tuesday 12th October 2004 at 00:00

More than 12 million working people are not saving enough for their retirement, a major report into pensions has found.

The Pensions Commission, chaired by former CBI chief Adair Turner, said a mix of higher taxes, more saving and a higher average retirement age was needed to solve the UK's pensions crisis.

Government Response: Department for Work and Pensions

Alan Johnson, secretary of state for work and pensions, said: "The report shows the government was right to tackle the appalling legacy of pensioner poverty that we inherited. Thanks to our policies the poorest pensioners are now £1,800 a year better off and pensioner poverty has reduced by two thirds.

"We have also helped those on lower incomes to build a second pension and ensure that it paid to do so. Now with Pension Credit, savings are no longer knocked straight off benefits and the sate second pension, together with incentives provided by the new tax credits, means that millions of low earners are being helped to save for retirement.

"Just as we have evolved the state system in the past so we will in the future, striking the right balance between tackling pensioner poverty, helping all pensioners and ensuring the right incentives for saving."

Party Response: Conservative Party

David Willetts, shadow work and pensions secretary, said: "Without early action, retirement for millions will fall a long way short of our expectations.

"I am setting out eight steps which a Conservative government would take to tackle the pensions crisis. Together, these measures would restore our saving culture."

Stakeholder Response: Association of British Insurers

Mary Francis, ABI director general, said: "Three years ago the ABI calculated that there was a savings gap of £27 billion each year.This now looks like an under-estimate.

"There are no easy answers to the pensions crisis, but the bones of a solution are emerging.

"We recommend: Reform the state pensions system. Means testing must be reduced significantly. We need a higher state pension focused on low earners (people earning less than £15,000 pa), with clear incentives to save for those who can afford to do so.

"Put employers back at the heart of pension provision. We want to see a package of employer-focused incentives aimed at getting people to save. Where an employer makes even a modest contribution, pension scheme take-up increases five-fold. We recommend a pension contribution tax credit to reward employers (especially in smaller and medium sized companies) who contribute to their workers' pensions.

"Build awareness of the need to save for old age. Fifty per cent of people responding to a recent ABI survey said they knew little or nothing about pensions. The ABI recommends a package of measures to encourage workers to plan for retirement earlier. In particular, we have recommended that employers should be able to promote their pension schemes and automatically enrol workers into them."

Stakeholder Response: Association of Consulting Actuaries

Adrian Waddingham, ACA chairman, said: "Reforms to the state scheme including the phased introduction of a higher retirement age and a higher level of state pension are feasible policy options. The public will respond to a clear pension strategy that reflects the government 'taking charge' rather than intent on avoiding difficult decisions.

"State pension reforms, however, are not enough. Many private and public sector pension schemes need to consider raising the age at which pensions are drawn and to reduce the pension target to a more modest and 'affordable' level over the longer-term.

"We are opposed to further compulsion to save for pensions. Rather, the ACA believes that with the right policy mix, the public will recognise that they need to save more. This policy may need to be assisted at lower income levels by the pursuit of government policies that encourage longer-term saving or that reduce the overall tax take from individuals on modest means."

Stakeholder Response: Which?

Mick McAteer, principal policy advisor for Which?, said: "A major pensions rethink is needed before it is too late. The transfer of risk to individuals has backfired.The government needs to ensure that we're saving enough as a nation and, if confidence is to be restored, people will need to have access to pension schemes provided by organisations which put their interests first.

"The Which? blueprint for pensions identifies the way forward. We are calling upon Alan Johnson, the secretary of state, to go boldly where no other secretary of state has gone and shake up the entire pensions system rather than just tinker at the edges. We hope that Adair Turner will recognise that too."

Stakeholder Response: Nationwide

Jim Willens, Nationwide's retail operations director, said: "The key to helping people plan for their retirement is to make it simple to save and simple to understand the benefits of saving.Consumers' willingness to save and confidence in saving, especially in equities, has been dented and this is not helped by the mixed messages about the benefits of saving that are coming from the government, particularly with regard to cash ISAs.We would like to see the government positively encouraging and incentivising people to save, and giving people more certainty that what they put in they will get out, with interest.

"We believe that the Pensions Commission should be looking at a broader definition of preparation for retirement, considering a range of vehicles including savings accounts, property investments and equity release as well as traditional pensions.Consumers are ready to consider alternatives to a pension and the Commission should encourage a wide range of ways of saving for retirement."

Stakeholder Response: Institute of Directors

Graeme Leach, chief economist at the IoD, said: "We need to see a savings renaissance in the UK. The government has an important role, but ultimately it is a matter of individual choice. Where the government does play a fundamental role is in deciding the retirement age and the generosity of the state pension. Here, the government is going to have to make some tough choices. The Commission's second report, due in 2005, will need to be bold and brave.

"Businesses do not want to see the overall burden tax burden rise. Indeed, there is a good argument that the current tax burden is one of the reasons why individuals and businesses cannot save more into pensions."

Stakeholder Response: National Consumer Council

Ed Mayo, NCC chief executive, said: "This is a brilliant and clear-thinking analysis of the looming UK pensions crisis, and one that pulls no punches. But the commission's three-pronged approach towards future pensions policy is missing one vital ingredient - tackling the massive 'trust gap' that will undermine any attempt to close the reported £57 billion savings gap.

"NCC's own research shows that the trust gap is real - among young and old alike. And that gap extends to government and employers, not just the pensions and investment industry. Putting the needs of ordinary people at the heart of pensions reform - with fairer savings incentives, affordable access to basic financial advice and low cost, safe savings products - is vital to closing that gap."

Stakeholder Response: Occupational Pensions Regulatory Authority

Tony Hobman, Opra chief executive, and chief executive designate of the Pensions Regulator, said: "Opra welcomes the publication of the interim report by the Pensions Commission, as an important contribution to the debate about reforming pensions and improving public confidence in work-based pensions.

"In relation to occupational pensions, Opra is due to be replaced by a new Pensions Regulator in 2005, subject to the Pensions Bill receiving Royal Assent. With wider and more flexible powers, the pensions regulator will have a greater ability to raise standards in occupational pensions, and ensure pension schemes are run well for the benefit of scheme members.

"A regulator that is able to focus on schemes that are most at risk, and can take appropriate action to reduce those risks, will help to improve member confidence, which in turn may encourage more people to join a work-based scheme.

"As the report points out, many people who have access to saving through the workplace are not joining their company pension scheme. Employers also need to ensure that they are doing all they can to provide new and existing staff with regular information about any company scheme they are eligible to join.

"The report also highlights substantial gaps in information and data collection within the pensions industry. By law, Opra has been limited in the type of information it can gather from occupational pension schemes, but the Pensions Regulator will have wider powers to collect more in-depth information. Earlier this year, Opra and the Department for Work and Pensions undertook a successful pilot project amongst a sample of pension schemes to develop a 'scheme return'. From 2005, all pension schemes will need to complete this on a regular basis. This and other information gathered by the pensions regulator will enable it to assess the risks faced by pension schemes, as well as providing an up-to-date overview of scheme membership."

Stakeholder Response: ARPO50

John Ball, economist at ARP050, said: “Adair Turner has added graphic detail to the picture of pensions in crisis which is already familiar in outline to everyone. This report is the third the government has commissioned on pensions and saving. Turner repeats the message from the reports of Pickering and Sandler that the system is overly complicated and discourages saving. There is no need for a further report on these issues from Turner, we already know enough to see the way forward. The time for simplification is now. A three point action plan is needed to restore confidence:1)An immediate announcement that Basic State Pension will be increased to the earnings related equivalent of £105 p.w. over the next ten years. 2)A start on this process by increasing the pension for over 75s next year. And 3)Reducing the age for automatic entitlement to the pension from 80 to 75.

"Such a package would immediately restore the incentive to save. It would end the humiliation of means testing for some of the most vulnerable people. It would be affordable in the short term and the slow introduction would permit a thorough debate about long term finances. The Turner Commission could usefully spend time making recommendations on issues such as adjusting Pension Age and how to uprate pensions in an affordable way."

Stakeholder Brief | Tue 12th Oct 2004 |