Below is the text of the speech made by John Hutton, the then Secretary of State for Work and Pensions, to the Fabian Women’s Network on 18th May 2006.
Next week the Government will set out its proposals for reforms to our pensions system to help more people achieve greater financial security in retirement. Our White Paper will lock in the huge progress we have made since 1997 in tackling pensioner poverty, and set a new direction to meet the fresh challenges we face in the decades ahead.
A compelling case for change was set out by the Pensions Commission last November. Three challenges stand out in particular.
Firstly, we are living longer. Of course this is good news. But it also means that in future there will be fewer and fewer people in work to support people in retirement, and in our system, it is the contributions of those in work that pay for the pensions of those who have retired. By 2050 there will be 50 per cent more pensioners than today. And there will only be 2 people of working age for every pensioner – compared with 4 for every pensioner today and 10 people 100 years ago.
Secondly, we are not saving enough. The Pensions Commission themselves calculated that between 9 and 12 million people are not saving enough for their retirement.
And finally, the current system is overly complex – possibly the most complex in the world. People often find it hard to work out whether they will be better off if they save or if they don’t. And it delivers unfair outcomes, particularly for women and carers, about which I will, of course, say more shortly.
I agree with the Pensions Commission that there isn’t a pensions crisis today. But there will be one in future if we don’t take action now to address these problems. Passing on the problem to the next generation to deal with would be simply to wash our hands of the problem. We can’t do this.
Central to this Labour Government’s programme of reforms – whether for public services or the welfare state – is the idea of an enabling state: Government giving people the tools and the support they need to provide for themselves. In truth, this has always been at the heart of our concept of a welfare state. It must remain so in the future too.
Just as the introduction of National Insurance contributions sought to do at the beginning of the last century, the next stage of pension reform must also imbed the same basic principle of personal responsibility in helping future generations plan for retirement.
And in doing so these reforms must, first and foremost, help establish a new pensions savings culture where future generations can aspire to saving for retirement incomes above the level of means-testing, having confidence that they will be better off saving than relying on means tested benefits. In simple terms, the state pension package should ensure that it pays to save – that there’s something in it for both the saver and the taxpayer.
The right way ahead has already been mapped out by the Pensions Commissioners – Lord Turner, Jeannie Drake and John Hills. They recommended:
A new low-cost savings scheme to give people an effective vehicle to save for their own retirement.
A higher state pension in return for a higher pension age as a means to allow all pensioners to share in the growing prosperity of the nation, promoting personal saving by giving people confidence that this will always be worthwhile.
And a fairer system that properly rewards the contributions made by women and carers.
We said at the outset that we accepted the basic framework of the Commission’s proposals, subject to the five key tests of promoting personal responsibility, affordability, simplicity, sustainability and, crucially, fairness.
The proposals we will publish next week will address the challenges the Pensions Commission described and meet those five tests. Following the blueprint Lord Turner recommended, this Labour government will set in motion the biggest renewal of our pension system since Clement Attlee’s post war Labour Government implemented the Beveridge reforms.
Our proposals will be underpinned by a new deal for women that tackles the inequalities of a system that reflects an outdated view of family relationships, properly recognising the different ways in which people contribute to our modern society today.
It is, of course, this issue of fairness to women on which the Fabian Society, the Parliamentary Labour Party and so many of the people in this room have campaigned so effectively for years. I want to pay tribute to the work you have done and the impact you have made. You have highlighted an injustice. Now we must put it right.
Tackling inequality in our society and promoting fairness and opportunity for all lie at the heart of our Labour movement and the social democratic tradition we represent. As a Government, these values define our policy agenda and drive our vision of the future.
Since 1997 we have made important progress in tackling poverty and discrimination and in breaking down the barriers that prevent people from fulfilling their potential. From last week’s Age Positive campaign to Civil Partnerships – we’ve sought to tackle prejudice and exclusion in every segment of our society
We’ve already implemented the most far-reaching programme of disability rights legislation that any European country has put in place. And we’re breaking down barriers to work – with increased employment rates for disabled people, minority ethnic groups, lone parents and for women as a whole.
Many of our pension reforms to date have focussed on fairness for current pensioners and in particular, on tackling the damaging legacy of pensioner poverty which we inherited in 1997. The Pension Credit has played a crucial role in correcting for the policy mistakes of the Tory years – helping to lift over 2 million pensioners of out abject poverty and 1 million pensioners out of relative poverty. Today, pensioners are no more likely to be poor than anyone else – a huge turn around since we came into office.
Two-thirds of those helped by Pension Credit have been women – many of whom have suffered from incomplete contribution records or been prevented entirely from being able to build up a state pension in their own right.
When Barbara Castle first sought to get to grips with this problem in 1978, she introduced Home Responsibilities Protection. Groundbreaking in its day, it meant that for the first time the vital contribution to society made by those caring for children was recognised by being counted towards entitlement to the Basic State Pension.
And the State Second Pension, introduced in 2002, meant that for the first time some caring responsibilities were reflected not only in Basic State Pension entitlement but also in access to a Second Pension. Each year, 5.5 million women and carers are now credited in to State Second pension as if they were earning £12,500 a year.
Both Home Responsibilities Protection and the State Second Pension have helped to improve pension entitlements for both women and carers. And women aged 25 to 45 are now as likely as men to be building a State Pension record.
But among tomorrow’s pensioners, women still account for around 60% of those who are not accruing any State Pension in their own right. And many carers are still excluded by a system which does not fully accommodate the greater flexibility of modern lives.
Amongst those reaching retirement recently, around 85% of men have entitlement to a full Basic State Pension, compared with around only 30% of women – and only 24% on the basis of their own contributions.
In particular, there’s critical group of women – currently aged around 45 and over – who are less likely than their younger peers to have benefited fully from Home Responsibilities Protection and who may not have returned to – or kept in touch with – the labour market in the way younger women have.
The need to achieve better outcomes for women was one of the objectives that led the Pensions Commission to suggest a residency basis for future accruals of the Basic State Pension from 2010.
The current system is projected to result in around half of women retiring with a full Basic State Pension in 2010. But implementing a residency based approach for accruals from 2010 would offer no immediate help to that core group aged 45 and over, who tend to have poor contribution records and do not now have time to put this right. Indeed, with a full 45-years before it matures into a virtually universal Basic State Pension, the residency based approach completely misses this critical group of women now aged 45 and over.
We simply can not afford to miss this key group or indeed to wait that long. That’s why at the heart of next week’s reforms will be a new contributory principle that gives women a fairer entitlement to the Basic State Pension more quickly – while ensuring that we value social contributions equally with cash contributions and move progressively away from a system predicated on a 19th century view of both working lives and social relationships.
As with a residency approach, our approach will mean that by 2050 around 95% of women will receive a full Basic State Pension. But unlike the residency approach, we believe we can achieve better outcomes for women much sooner – such that in 2010 when the residency approach has made no impact and leaves only 50% of women retiring with a full Basic State Pension, our proposals will mean 70% entitlement to a full Basic State Pension.
And after 15 years, in 2025, when even today’s current system is projected to offer a full Basic State Pension to around 80% of newly retiring women, the residency based approach may only improve this to around 85% – while our proposals will achieve over 90%.
This means that, under our proposals, up to 270,000 more women will get a full Basic State Pension in 2020 – possibly in the region of 180,000 more than under a residence-accrual based scheme.
What’s more, by changing the system of credits to better reflect the different ways in which people contribute to society; and simplifying the system such that each and every year of contributions count towards the Basic State Pension, we will be better able to accommodate the greater flexibility of modern lives – in particular extending new recognition and state pension entitlement to many carers not currently supported by the existing system of Carer’s Allowance and Home Responsibilities Protection. And there are a range of other technical requirements that impose further obstacles in the way of women acquiring a full pension. It is right that we look again at these rules so that every year counts towards calculating entitlement.
Certain patterns of working and caring exist where – in an extreme example – a woman may be doing a combination of work and caring for 30-hours a week but not be able to accrue any State Pension. This is simply wrong – and our new contributory principle will end this injustice – finally placing cash and social contributions on an equal footing.
I think the public are behind these changes too. In a recent survey, almost four out of five people thought that carers should get the same amount of State Pension as someone who had worked all their life.
And at the National Pensions Day, the majority of people believed that paid work, voluntary work, caring for children, caring for the sick and disabled, and time spent long-term sick or disabled and unable to work should all count towards the additional State Pension.
But it’s also a contributory principle, which unlike a residence test, retains the crucial link between rights and responsibilities – that principle of something for something that defines the role of the modern welfare state. And as with our Welfare Reforms earlier this year, it makes clear the expectation that all those who can do so – should contribute to our society.
So it’s a principle which doesn’t just pass the fairness test but passes all of the five keys tests. It’s fairer and simpler, sustainable and affordable – but most crucially of all – it promotes personal responsibility.
Next week’s White Paper will strike a new balance of responsibility between the employer, the State and the individual. It will continue to protect the poorest pensioners from poverty and ensure that all pensioners share in the growing wealth of society. But it will also equip each and every individual – male or female – with the tools they need to save adequately for their retirement; recognising and rewarding the contributions they make to society and helping them to build the retirement income that they want and expect.
I hope our proposals will form the basis of a new consensus on a long-term solution to how we provide an effective pensions system in our country. A consensus that has been shaped by all that we have learnt from both the Turner Report and the National Pensions Debate – the final report of which we will publish early next week. And a consensus which puts fair outcomes for women at its core.
Fair outcomes for women is the measure of our intention – and we are happy to measure our progress towards this goal. Our Women and Pensions Report last November assessed the challenge we face – now we will go one step further and assess the impact of our policies in meeting this challenge.
But it is true that we will only truly eliminate inequality in retirement – when we also eliminate inequality in working life. That’s why we must also continue to build on the progress we’ve made in supporting women in the workplace through the National Minimum Wage and our investment in delivering universal wrap-around childcare by 2010.
We’ve already reached the highest female employment rate of the major EU countries but women in full-time work still earn on average 13% less than men. Until we have eliminated that gap in pay, income and assets and broken the glass-ceiling for progression through working life, we won’t fully eliminate the inequalities that lead to only 38% of today’s working-age women contributing to a private pension compared with 46% of working-age men. And which see women who do save for a private pension contributing significantly less on average than their male counterparts.
The Equal Opportunities Commission once said – “if we get it right for women, we’ll get it right for everyone”
We’ll only get it right for women when we’ve got it right in working life and retirement. But I truly hope and believe that with next week’s pensions reforms we’ll not only achieve the basis for a new lasting pensions settlement – but in doing so move a great deal closer to our goal of true equality and opportunity for all women.