Stephen Timms – 2006 Speech on Pensions Commission Report

stephentimms

Below is the text of the speech made by Stephen Timms, the then Minister of State for Pension Reform, at TUC Congress House in London on 18th January 2006.

Thank you for inviting me here today.

Pensions have never had such a high profile as they do today. I was pensions minister before, in 1999, and at that time pensions seemed like a fascinating and vital area of policy, but one of little interest outside quite a small circle. Today, everyone is talking about pensions, and for me that is a very important first step towards resolving the challenges which we face. And the progress is in no small part thanks to the invaluable work of the Pension Commission.

I think its worth just pausing for a moment to reflect on what the Commission has achieved. There were three Commissioners: a former Director General of the CBI; last year’s President of the TUC; and a distinguished social policy academic from the LSE. And simply in producing for us a unanimous, well thought through report, which addresses the issues people have been raising, they have done us an enormous service.

Their final report, building on what they had already told us in their interim report in November 2004 marks a milestone in responding to the impact of huge demographic and cultural changes going forward. Life expectancy has gone up by two or three months every year for the past quarter of a century, and the trend shows absolutely no sign of slackening off. It’s a wonderful transformation – arguably the greatest achievement of our civilisation – but its one which presents major challenges to our public and private pension systems. Our response will influence the shape of our society for decades to come.

I welcome the important contributions to the debate which the TUC and Help the Aged have already made. We need more events like this for everyone to come together for a sensible discussion about the options. The more debate we have, the more people will have the chance to get their heads around the ideas and the challenges, and the better the prospects for building a consensus. And we need a consensus in order to achieve confidence that we will be introducing a package of reforms which will endure for the long term. And that’s key. People need to be confident that decisions they make in the next few years about saving for their retirement will still seem like sensible choices to have made when they come to draw an income on the basis of them in 20 or 30 or 40 years time.

I would characterise the Pensions Commission report as comprising essentially four bold ideas:

– Auto-enrolment into a national system of personal accounts;

– Mandatory matching employer contributions amounting to 3% of salary;

– Basic state pension linked from 2010 to earnings rather than prices;

– A gradual increase in state pension age in line with rising life expectancy, starting in 2020 – with a rise to 66 sometime in the 2020s.

The Commission has done a very impressive job. They have sifted a lot of evidence; they have weighed a great variety of opinions; and they have carried out a lot of impressive analysis of their own. There are big questions around all four of these recommendations, but they have produced a set of recommendations which address the concerns people have been raising and which hang together in a coherent way.

David Blunkett and I launched the National Pensions Debate last summer. We have held events in different parts of the country to sound out views and get a sense of how people feel we should go forward. Earlier today, after a meeting with Brendan, Mervyn, Adair Turner and others, John Hutton announced the next phase of the National Pensions Debate, recognising that taking full account of public opinion – and not least trade union opinion – is going to be key to achieving a successful package of reform.

We are planning a number of public engagement events over the next couple of months, building up to a large scale national event in March – a National Pensions Day. We have just let a contract to Opinion Leader Research to organise the programme. National Pensions Day will provide an opportunity for a large number of people in different locations around the country to engage with Government, to discuss the Commission recommendations and to consider the choices we have to make in dealing with the challenges ahead. It will be a good opportunity for people to contribute to shaping a long term pensions settlement. Around these events there will also be other activity, such as a toolkit for people to hold events of their own.

So the next, and some would say the more difficult, phase of the debate is now beginning. Before, we were focussing on a diagnosis of the problem and generating ideas. Now we must debate and test the ideas of the Pensions Commissions against criteria and objectives that will deliver a lasting settlement.

I don’t underestimate the challenge – no-one wants to hear they will have to work longer, or pay more tax, or have to spend less to save more. But nor do they want to hear that they will face a lower standard of living relative to rest of society – which is the alternative.

Policy changes since 1997 – and in particular the introduction of pension credit and other improvements in support for pensioners – have been successful in breaking the historic like between old age and poverty. Pensioners are now no more likely to be poor than anyone else – which is a particularly remarkable achievement after a period like the last eight years in which working incomes have been rising so quickly. That is a big leap forward for fairness and we want to maintain that progress.

But we need to secure fairness between the generations too. It would not be right to saddle a declining number of people of working age with a disproportionate tax bill for supporting an increasing number of pensioners in the decades to come. The aim of the debate is to face up to some difficult choices like that.

Among the Pensions Commission recommendations, the Government is ruling nothing in and ruling nothing out at this stage. We have an open mind and we continue to welcome feedback on the Commission’s proposals, and ideas on alternative ways forward.

The work of the Pensions Commission, the national pensions debate events and our own analysis of the situation will come to fruition in the Spring, when we publish our pensions White Paper. In advance of that, and in welcoming the Pensions Commission report as providing a good basis for building the consensus that we need, John Hutton has said that the Government’s package of reform proposals will need to meet five key tests and I’d like to take a moment to outline them now.

First, does it promote personal responsibility?

The primary responsibility for security in old age has to rest with the individual and their families. We must enable people to provide for themselves, giving everyone the opportunity to build a decent retirement income to meet their needs and hopes.

Second, is it fair?

The system must protect the least well off, and – I think this is going to be critically important in the public debate – the new system will need to be fair to women and carers, correcting past inequalities. At the moment, only about 30% of women reach state pension age with a full basic state pension, compared with almost 90% of men. It will take the current system twenty years for that discrepancy to be put right. I think people are going to want us to achieve fairness much more quickly than that.

The new system must also be fair to those who have saved – rewarding those who have contributed and incentivising those who can save to do so.

Third, is it affordable?

This test will be absolutely central. A near 50% rise in the number of pensioners between now and 2050 presents challenges and choices for the country about the proportion of its wealth that should be used to support retirement. Already we are spending £11 billion a year more on pensioners due to our tax and benefit changes since 1997, compared incidentally with £3 billion, which would have been the bill if we had simply put in place an earnings link for the basic state pension in 1997. The bulk of that focussed on the poorest pensioners. We must not put the long term stability of public finances at risk, and we won’t as it has been such a big prize for us since then.

Fourth, is it simple?

There needs to be a clear deal between citizens and the state. People need to know what the Government will do for them and they need to be clear about what is expected of them. The choices people have to make need to be clear and straightforward. That doesn’t necessarily mean the details of the system are simple, but the way it is presented has to be.

And fifth, is it sustainable?

Any package of reform must form the basis of an enduring national consensus – and one on which people can make decisions about their retirement planning with confidence that it won’t be pulled apart by successive Governments fiddling with the system.

Our task now is to lay the foundations for a lasting pensions settlement. We want new arrangements that stand the test of time; that won’t be uprooted by successive Governments; that will allow people to plan ahead and make decisions with confidence – whilst being flexible enough to adapt to whatever challenges will emerge in the future.

The Government can’t solve the pensions challenge on our own. We need all of us to work together to build a lasting settlement. I need you – for example – to feed back to us the observations of your members.

I am optimistic about what we can achieve together over the next few months, but we need all of us to be involved and contributing to this debate.

Thank you.

Stephen Timms – 2006 Speech on Public Service Pensions

stephentimms

Below is the text of the speech made by Stephen Timms, the then Minister of State for Pension Reforms, at the National Union of Teachers in Mabledon Place, London, on 1st February 2006.

I am delighted to be here.

I very much welcome opportunities like this for a discussion on the options for future pensions policy. The more debate we have – and we had a very constructive debate about this in the House of Commons last night – the more people have the chance to get their heads around the ideas and the challenges, and the better the prospects for building a consensus.

And I believe we need a consensus in order to achieve confidence that we will be introducing a package of reforms which will endure for the long term. And that’s key. People need to be confident that decisions they make in the next few years about saving for their retirement will still seem like sensible choices to have made when they come to draw an income on the basis of them in 20 or 30 or 40 years time.

Pensions policy since 1997

Pensions have never had such a high profile. This is my second stint as pensions minister, and in 1999 it was a fascinating and vital area of policy, but one of little interest outside quite a small circle. Today, everyone is talking about pensions. I am pleased about that. That level of discussion is much more appropriate given the importance of the topic.

We have already made a range of very important changes in pensions policy since 1997 – and it has been those changes which have delivered a platform now on which we have the chance to build a pensions settlement for the long term.

If you look at what happened to pensioner incomes in the 1980s and 1990s, many people saw big improvements. But the problem was that far too many people were completely left behind by the general improvement. It meant we were left in 1997 with hundreds of thousands of single pensioners with a total income of £69 per week through income support – and, if they had managed to save up a modest pension income of a few pounds per week on top of the state pension, that was taken off their income support pound for pound.

And tackling that problem was our highest priority in pensions policy when we were elected in 1997, leading up to the introduction of Pension Credit in 2003. As a result, for the first time ever in a period of growth in the economy, retired people are no more likely than anyone else to be poor. It is a remarkable change – particularly – after a period like the last eight years in which working incomes have been rising so quickly. We have seen particularly large gains among older single women, and the dramatic improvement of the incomes in that group is arguably the most significant of all the big social improvements since 1997.

We have also brought forward measures to bolster confidence in occupational pensions, through the Pension Protection Fund and the Financial Assistance Scheme. We have introduced the state second pension which greatly boosts the pension savings of people on low incomes, and enables carers now for the first time to build up a second pension. And we have introduced stakeholder pensions which make it possible to save economically for people for whom it was not possible in the past.

The Pensions Commission

But there is much more interest in all of this today. And that change is in no small part thanks to the work of the Pensions Commission, which has thrust the debate about pensions onto the front pages of the newspapers, no longer the preserve of a handful of insiders but a debate the public at large are engaged with.

I think it’s worth just pausing for a moment to reflect on what the Commission has achieved. There were three Commissioners: a former Director General of the CBI; last year’s President of the TUC; and a distinguished social policy academic from the LSE. And simply in producing for us a unanimous, well thought through report, which addresses the issues people have been raising, they have done us an enormous service.

Life expectancy has gone up by two or three months every year for the past quarter of a century, and the trend shows absolutely no sign of slackening off. In 1950, average male retirement age was 67 and we spent 19% of our adult life in retirement. Today we spend almost 30%. And life expectancy is continuing to race ahead.

It’s a wonderful transformation – arguably the greatest achievement of our civilisation – but it’s one which presents major challenges to our public and private pension systems. We need to manage the impact of demographic, social and economic challenges to support security and dignity for everyone in old age. And I believe we can.

The Turner Commission was very clear that there is not a pensions crisis today. I agree. But they identified 9.6 million people who were not saving enough for their retirement. Failure to respond would lead to a crisis in twenty or thirty years time. We need to adapt our policies today, and our response will influence the shape of our society for decades to come.

I would characterise the Pensions Commission report as comprising essentially four bold ideas:

Auto-enrolment into a national system of personal accounts;

Mandatory matching employer contributions at 3% of salary;

Basic state pension linked from 2010 to earnings rather than prices;

A gradual increase in state pension age in line with rising life expectancy, starting with a rise from 65 to 66 sometime in twenty years time.

The Commission has done a very impressive job. They have sifted a lot of evidence; they have weighed a great variety of opinions; and they have carried out a lot of impressive analysis of their own. There are big questions around all four of these recommendations, but they have produced a set of recommendations which address the concerns people have been raising and which hang together in a coherent way.

The National Pensions Debate

David Blunkett and I launched the National Pensions Debate last summer. We have held events in different parts of the country to sound out views and get a sense of how people feel we should go forward.

John Hutton recently announced the next phase of the National Pensions Debate. We recognise that taking full account of public opinion – not least contributions from pensioners’ organisations and trade unions – will be absolutely vital to achieving a successful package of reform.

We are planning a number of public engagement events over the next couple of months, building up to a large scale national event in March – a National Pensions Day. We have let a contract to Opinion Leader Research to organise the programme. The Day will provide an opportunity for a large number of people in half a dozen different locations around the country to deliberate and express considered views on the choices we have to make in dealing with the challenges ahead. It will be an important contribution to shaping a long term pensions settlement. And there will be other activity, such as a toolkit for people to hold deliberation events of their own.

I don’t underestimate the challenge. No-one wants to hear they will have to work longer, or pay more tax, or have to spend less to save more. But nor do they want to hear that they will face a lower standard of living relative to rest of society – which is the alternative.

Among the Pensions Commission recommendations, we are ruling nothing in and ruling nothing out at this stage. We have an open mind and we continue to welcome feedback on the Commission’s proposals, and ideas on alternative ways forward.

The work of the Pensions Commission, the National Pensions Debate and our own analysis of the situation will come to fruition in the Spring, when we publish our pensions White Paper. In advance of that, and in welcoming the Pensions Commission report as providing a good basis for building the consensus that we need, John Hutton has said that the Government’s package of reform proposals will need to meet five key tests and I’d like to take a moment to outline them now.

First, does it promote personal responsibility?

The primary responsibility for security in old age has to rest with the individual and their families. We must enable people to provide for themselves, giving everyone the opportunity to build a decent retirement income to meet their needs and hopes.

Second, is it fair?

The system must protect the least well off, and – I think this is going to be critically important in the public debate – the new system will need to be fair to women and carers, correcting past inequalities. At the moment, only about 30% of women reach state pension age with a full basic state pension, compared with almost 90% of men. It will take the current system twenty years for that discrepancy to be put right. I think people are going to want us to achieve fairness much more quickly than that.

The new system must also be fair to those who have saved – rewarding those who have contributed, and giving an incentive for those who can save to do so.

Third, is it affordable?

This test will be absolutely central. We anticipate a near 50% rise in the number of pensioners between now and 2050. So what proportion of the nation’s wealth should we use to support retirement? Already we are spending £11 billion a year more on pensioners due to our tax and benefit changes since 1997, compared incidentally with £3 billion, which would have been the bill if we had simply put in place an earnings link for the basic state pension in 1997. The bulk of that extra spending has been focussed on the least well off pensioners. But in planning for the future, we certainly mustn’t put long term stability of the public finances at risk, and we won’t.

Fourth, is it simple?

There needs to be a clear deal between citizens and the state. People need to know what the Government will do for them and they need to be clear about what is expected of them. The choices people have to make need to be clear and straightforward. That doesn’t necessarily mean the details of the system will be simple, but the choices do have to be.

And fifth, is it sustainable?

Any package of reform must form the basis of an enduring national consensus – and one on which people can make decisions about their retirement planning with confidence that it won’t be pulled apart by successive Governments fiddling with the system. We want new arrangements that stand the test of time; that will allow people to plan ahead and make decisions with confidence – whilst being flexible enough to adapt to whatever challenges will emerge in the future.

Conclusion

The Government can’t solve the pensions challenge on our own. We need all of us to work together to build a lasting settlement. I need you – for example – to feed back to us the observations of your members.

I am optimistic about what we can achieve over the next few months, about the prospects for securing this lasting pensions settlement, but we need all of us to be engaged and contributing to the debate in order to be successful.

I am grateful to have this opportunity with this group today.

Stephen Timms – 2006 Speech to Resolution Foundation

stephentimms

Below is the text of the speech made by Stephen Timms, the then Minister of State for Pension Reform, to the Resolution Foundation on 7th February 2006.

I am delighted to be here. I am an enthusiastic supporter of the corporate responsibility movement because I see it as one of the most hopeful resources we have for creative new ideas to address some big challenges our society faces. The Resolution Foundation is an excellent example of that and I warmly welcome this first public initiative which the Foundation is taking.

We are in a busy period for welfare reform. We have made clear that our approach is underpinned by core values: equality, opportunity, fairness, social justice. Its an approach which resonates well with the British people, as we saw two weeks ago with the very warm public response to the welfare reform green paper, setting out how we can improve the opportunities for people who have become trapped on incapacity benefits, removing some of the barriers which have made it difficult for them to move back into employment, and encouraging them to do so. And the most positive responses of all came from disabled people themselves.

And we want now to build on this pro-reform wave, building on the same values, to set out how we will make the most of the opportunities of an ageing society. We want to support successful outcomes throughout people’s lives, enabling people to make choices for themselves with confidence, and in that way to deliver security and dignity in retirement.

Life expectancy at 65 has been going up by two or three months every year for the past quarter of a century, and the trend shows absolutely no sign of slackening off. If anything, it has been speeding up in the latter part of the period. It’s a wonderful transformation – arguably the greatest achievement of our civilisation – but its one which presents major challenges to our public and private pension systems.

The Pensions Commission had three members: a former Director General of the CBI; last year’s President of the TUC; and a distinguished social policy academic from the LSE. And simply in producing for us a unanimous, well thought through report, which addresses the issues people have been raising, they have done us an enormous service. It opens up the chance now of an enduring pensions settlement for the UK, which everyone can see would be an enormous prize. To secure it, we need as broad as possible a consensus about the right way forward.

The Commission’s first report identified two significant challenges. The first was the demographic challenge. In 1950 we spent 19% of our adult life in retirement. We now spend almost 30%. And the figure will rise further still. The second was under-saving. The Commission calculated that as many as 10 million people were not making adequate provision for retirement. People on low income form a significant proportion of this number – exactly the group the Resolution Foundation has been researching, and I do welcome the approach the Foundation has been taking.

I would characterise the Commission’s final report in November as comprising essentially four bold ideas:

– Auto-enrolment into a national system of personal pension accounts;

– Mandatory matching employer contributions amounting to 3% of salary;

– Basic state pension linked from 2010 to earnings rather than prices;

– A gradual increase in state pension age in line with rising life expectancy, starting in 2020 – with a rise to 66 anticipated by 2030.

We have welcomed the broad framework of the Pensions Commission proposals and options. As the report itself made clear, there is still much to be discussed and decided on the detail, but the report has provided us with the right framework for building the consensus for reform which we need.

The National Pensions Debate was launched by David Blunkett last summer. There have been a series of events across the country, providing an opportunity for us to engage directly with individuals affected by the outcome of the debate, to seek the views of as wide a group of people and institutions as possible. The more debate we have, the more people will have the chance to get their heads around the ideas and the challenges, and the better the prospects for building a consensus. And we need a consensus, because only a consensus can secure public confidence that we will be introducing a package of reforms which will endure for the long term.

We are planning a number of public engagement events over the next couple of months, building up to a large scale national event in March – a National Pensions Day. That will involve people of all ages from every section of the community taking part in simultaneous consultation events in major cities across the UK. John Hutton will be setting out today in a speech to the Work Foundation further details of our proposals for the Day.

The work of the Pensions Commission, the national pensions debate events and our own analysis of the situation will come to fruition in the Spring, when we publish our pensions White Paper.

In advance of this we have made clear that a package of reform which we will feel able to bring forward in the white paper will need to meet five key tests: that it promotes personal responsibility; and is fair, affordable, simple and sustainable.

I want to comment in particular today on three of the tests, most directly impacted by the focus of this conference – on personal responsibility, simplicity and sustainability.

Personal responsibility

Firstly, personal responsibility. The primary responsibility for security in old age has to rest with the individual and their families. An active welfare state must provide a floor below which no-one should be allowed to fall, but its primary role must be to enable people to provide for themselves, giving everyone the opportunity to build a decent retirement income that meets their needs and hopes.

That means we need to encourage individuals and their employers to provide for a pension that will deliver at least a minimum base load of earnings-replacement; and to provide for everyone the opportunity to save for a decent pension at the lowest possible cost.

Lord Turner saw a major expansion of workplace savings as fundamental, recommending that all employees should be automatically enrolled into either a high quality employer pension scheme or a newly created National Pensions Savings Scheme.

The principle of personal accounts has been widely welcomed by the pensions industry. But there is a variety of views about how that principle can most effectively be secured. We want to explore the alternatives – to build consensus by testing different ideas. That is why I invited all those in the industry who believe that they can produce a better model for personal accounts to work up the details of their alternative approach and submit them to us by the end of this week. We will be holding a joint event for all the alternatives to be presented and considered on 28 February.

Simplicity

Another key test is simplicity – straightforwardness for pension savers. There must be a clear deal between citizens and the State, so that people know what the Government will do for them, and what responsibilities they have in return.

The US Social Security system provides an informative illustration. The formula for working out each person’s social security payment when they retire is quite complicated. But the shape of the system is crystal clear to everyone – and there is a very high degree of confidence on which people can base their decisions about saving. Of course, it helps that the system has barely changed in its essentials since it was introduced by F D Roosevelt’s Secretary of Labor – Frances Perkins, the first woman to serve in an American cabinet – in 1935. We need a comparable degree of confidence in our system.

So we need clear, credible financial advice; and an important role for pensions information and pensions forecasts in showing people how much they need to save to achieve the income they want in retirement. We need better financial capability, so that people are able to plan ahead to achieve their aspirations for retirement.

We want people to be in a position:

– to accept personal responsibility and be motivated to take action;

– to have realistic expectations; and

– to make confident decisions about their long-term finances.

The aim of our Informed Choice programme for pensions is to help people to understand the importance of long-term savings, and the value of savings they already have. We want them to know what options they have to meet any shortfall in their financial expectations for retirement.

A third of consumers admit lacking confidence with financial affairs. To improve the position, we need to work in partnership with the financial service industry. So my department is working alongside the FSA and others on the national strategy for financial capability which Clive Briault will be speaking about shortly. I serve on the steering group for that.

I am very pleased that the Resolution Foundation is working with the FSA at improving financial capability through generic financial advice. I welcome the focus in that work on the needs of low to middle earners. That is a crucial audience in tackling under-saving for retirement, and the key target market for any national system of personal pension accounts.

Improving financial capability will also bring broader economic benefits. It will lower unemployment, boost people’s earnings and promote wider social benefits.

But information alone will not remedy all the problems of consumers in financial services markets. Individuals need skills to convert basic information into effective knowledge. With those skills comes confidence to demand high levels of service from businesses. Consumers who make the right choices and can assert their needs clearly can encourage businesses to become more competitive. Confident consumers drive markets to work better, for the common good.

I know the Resolution Foundation is exploring this area and I will be interested in any proposals being proposed in this area. Jeremy Vincent from my department will set out lessons from a DWP pilot on pensions advice in the workplace in Session 3 today.

Sustainability

The final test is one of sustainability – having a system that allows people to plan over the long term. The reform package must form the basis of an enduring national consensus; a system that will – like the US system – stand the test of time and not fall victim to constant modification by successive Governments. And that is key. People need to be confident that decisions they make in the next few years about saving for their retirement will still seem like sensible choices to have made, when they come to draw a retirement income on the basis of them in 20 or 30 or 40 years time.

I’m optimistic about what we can achieve but the Government cannot solve the pensions challenge on our own. It requires all of us to work together to build a lasting settlement. I warmly welcome the contribution of the Resolution Foundation in providing potentially some critical insights for a successful package of reform.

Thank you.

Stephen Timms – 2005 Speech at IPPR Report Launch

stephentimms

Below is the text of the speech made by Stephen Timms, the then Minister of State for Pension Reform, made at the Institute of Materials on 25th July 2005.

Thank you for inviting me here today. I’m very pleased to have the opportunity to respond to Peter this morning and to engage in a discussion with you all on this central issue in the pensions debate. And we see raising the effective age of retirement as not just about pensions, but also as addressing the wider welfare reform challenge which confronts us. We want to create an inclusive society where we can all benefit from the skills and contributions of people who want to work but who are currently excluded from the labour market, whether their exclusion is because of their age, their lack of skills, or for any other reason.

Age and retirement

As the report points out, developing active labour market policies and tackling age discrimination are crucial. With over a third of men outside the labour market by the age of 60, for many the debate is not about working beyond 65, but actually about having the opportunity to work as long as age 65. We’ve made some progress on this, thanks in part to initiatives such as New Deal 50 plus. Employment rates for those aged 50 to State Pension Age have now increased by 8% in the last 10 years. There is much further to go, but there’s no dispute that we should try and get there. There is, as the report says, a clear consensus on tackling economic inactivity and breaking down the barriers facing older workers; and success among older workers will be crucial if we are to achieve our ambition of an 80% employment rate overall.

With the introduction next year of the age component of the EU Directive on Equal Treatment, we are setting in place a legislative framework which ensures that people can not be barred from employment on the basis of age. Mandatory retirement ages below 65 will be prohibited other than in very exceptional cases. And we have been running the “Age Positive” campaign, drawing employers’ attention to the business benefits of an age diverse workforce. We have issued 130,000 copies of the Age Positive Code of Good Practice, which sets the standard for non-ageist approaches to recruitment, training, promotion, redundancy and retirement.

There is no consensus, however, around the desirability of raising the state pension age. There is a growing recognition that working longer is going to have to be part of the solution, and we have seen in recent years an increase in the average age of leaving the workforce, after a long period when that age was falling. But many who would agree that we should be removing the barriers to working longer would strongly oppose steps to compel people to work longer, and who can blame them?

What I think is particularly powerful about today’s report, is the way that it considers public attitudes alongside the reality of the challenges we face. The idea of having to work longer is an emotive subject – we’ve all seen the scare stories and the national newspaper headlines. The Pensions Minister who announces that “we’re going to make you work longer”, and does so without having first built a political and wider national consensus, is likely to be one person whose working life does not end up being extended!

We need to work with people to understand the reality of the challenges that we face – and contribute to a sense of ownership of the problems and the possible solutions. That’s why David Blunkett and I are engaged in a National Debate in which we are going around the country meeting people of all ages and backgrounds – sharing the problems and listening to their views. We’ve already held events in London and Manchester and we’re in Bristol tomorrow – part of a programme that will run up to and beyond the Pensions Commission report later this year. We want to include as wide a cross-section of views as possible, including academics, trade unions and industry representatives; and we are looking for a ground-breaking political consensus from across the parties.

Incentives to work longer

One of the things that has been particularly striking in the early National Debate events, is the extent to which people don’t know about state pension deferral. As a result of last year’s Pensions Act, someone can choose to delay taking their state pension, and be rewarded with a higher state pension – increased by a full 10% for each year of deferral – or a lump sum of, on average after a five year deferral, £20,000 to £30,000.

You don’t have to defer for five years to obtain a significant reward. A 65-year-old single man entitled to an average state pension of £107.45 who defers for two years would be entitled to an increased pension of over £129 a week, or a lump sum of nearly £12,000.

People are hostile to the idea of being compelled to do something – but when it is a choice and there are clear incentives to do something, attitudes begin to change. But Peter is right to sound a cautionary note that we don’t yet know how effective these incentives will be. I was in Washington discussing pensions with policy makers in the US last week, and there it is possible to draw your state pension early, at the age of 62 rather than 65 at which the full benefit is payable, at the price of suffering an actuarially fair reduction in the pension you receive. It is striking, as Peter points out, that over half of US retirees choose to start to draw their state pension at 62 rather than waiting for the full rate which they can receive at 65.

The choices we face

There is no escaping the tough choices we face as a society. In 1951, just after Beveridge introduced our present pensions system, the typical man reaching 65 could expect to live only a further 11 years. In 2005 this has risen to over 19 years. Life expectancy of a 65 year old has risen by two to three months every year for the past twenty years, and there is no sign of the trend slackening off. It is a wonderful transformation, but the pensions system needs to be adjusted to reflect the new realities rather than the old ones.

This improvement in mortality has been contrasted by a fall in birth rates over the same period. By 2052 one in four of our population will be over 65. And this is a global phenomenon, and in the UK we are better placed than in many other countries. In China, for example, between 2000 and 2050, the number of people aged 60 or over is set to increase by 250%.

Adair Turner’s first report offered us four options. Leaving aside the option of pensioners having lower incomes, Adair left us with what’s been called an “iron triangle of choices”. We either save more and/or we increase our taxes and/or we work longer.

But a key part of the challenge is to build a lasting solution that will work in a changing world – not just for today and tomorrow. We can’t consider these practical choices in isolation from people’s attitudes, nor without thinking about the society and the culture we are trying to build for the future.

We want the welfare state for the 21st Century to be driven by a something-for-something ethic. Making the most of the opportunity of longer, healthier living means enabling people to contribute to society throughout their lives – not only through the workplace, but through the wider community. It’s why our “Opportunity Age” consultation launched in March, and other cross-Government initiatives, are designed to tackle the fear of isolation by encouraging and supporting older people to contribute to their communities. Only a quarter of over-60s today feel that they can influence local decisions.

And, of course, the proportion of older people who live alone is likely to increase in the next 20 years. So encouraging older people to build alternative networks of support and interest, and tackling this sense of exclusion are crucial if we are to make the most of the opportunities for our society of increasing age.

An asset state

Much of what the Government has done to date has focused on tackling pensioner poverty. To prevent future poverty, the support we provide to enable people to build assets – both at an individual and a community level – will be absolutely crucial. As David argued at an IPPR seminar earlier this month, we face a new equality challenge and increasingly people’s assets are going to be as, if not more, important than people’s income.

We need attitudes to change towards savings. There is a great need for information that people can trust. It demands that Government and the financial services industry work together with individuals, families and communities themselves to unlock the potential of an asset state.

The Child Trust Fund, providing a Government contribution to open an account for every child born in the UK after September 2002, offers a first stepping stone to self-reliance, and a stake in the world for those without inherited assets or substantial family income. Savings vehicles like the Savings Gateway, where Government matches the saving contributions of people on low incomes for whom tax incentives for saving offer little attraction, will also play an important role in encouraging saving on the part of future generations.

Informed choice

Financial literacy and access to mainstream financial services have previously too often been restricted for many people on low incomes. Last December as Financial Secretary to the Treasury I reached an agreement with the banks that we would work together towards the goal of halving the number of adults in households without a bank account – and to demonstrate significant progress in that direction within 2 years.

The quality of information that people have, and the extent to which they trust it, will be key. Whether we are talking about pensions forecasts or life expectancy statistics – if people don’t trust this information they won’t use it to change their behaviours. What more we can do to build trust is a key question for Government. But it’s not a question for Government alone. It’s a fundamental question for our communities – for our business ethics – and for the society that we build for tomorrow.

Tomorrow’s attitudes

We already know that tomorrow’s attitudes will be shaped by the reality that people are more likely to have ten jobs in a career than one – and they are going to demand ever greater flexibility in how and where they live and work. With increased mobility and an ever greater ability to communicate across the world, our sense of community will not just be about the geographical area where we live, but also about people and friends with whom we share interests, and aspirations for the future.

And that’s important for the question of increasing the effective retirement age and the State Pension Age. Today’s report argues that the State Pension Age can act as a signal – impacting on the normal retirement ages set by employers and the expected retirement ages of individuals. That is undoubtedly true.

But the report also points out the deep hostility that people have to the idea of being made to work longer. Far better, one would think, that any future increase in the State Pension Age should be underpinned by a broad consensus that reflects a change in people’s attitudes and understanding; and that any such change, if there is to be one, should be seen less as an imposition that forces people to change their behaviour than as a reflection of the new expectations of individuals and communities in a changing society.

The State Pension Age is a very blunt tool for changing effective retirement ages. The report recognises the concerns that many of us hold over the potential inequity of raising the State Pension Age when people from less well off backgrounds often have lower life expectancy. Even in a future world where there may be fewer people doing manual work and where general improvements in quality of life could narrow this distribution of life expectancy, it’s difficult to get away from the objection that an increase in the State Pension Age would hit the poorest hardest.

We need to be quite creative in thinking about this. If we did ultimately increase the State Pension Age, could we take steps at the same time to protect the least well off from losing out? We heard evidence in Washington last week that the Pension Credit and Winter Fuel Payments have extended lives. Do we need to think beyond the traditional concept of a State Pension Age? Could we achieve an increase in the effective retirement age by building on and extending our State Pension Deferral policy?

Measures in last year’s Finance Act will now give people the option to work for the same employer whilst drawing an occupational pension. This will give employees greater flexibility to plan a gradual move from full time work to retirement. Could we support this with an extension of State Pension Deferral which allowed people the option of deferring some of their State Pension rather than all of it? Could we extend this concept to the State Pension Age – moving from a single date to a series of options where people are incentivised to take some or all of their State Pension later, but where the least well off are not left behind without adequate support? Are there other things we might do within the State Pension to send out the right signals and address people’s concerns about fairness?

These are the issues we are reflecting on as the Turner Commission finished its work. I’d be interested in your views in the discussion that follows about what more we can do as a society to help people understand the challenges that we face – to show people that we have not made up or imagined the trend in rising life expectancy but we do need to address it. And crucially how we can do more to build trust – not just in Government – or even in statistics and information on life expectancy – but actually across the financial services and within communities themselves.

And I’d be interested to know what people think about how we prepare for and shape a society that makes the most of longer and healthier lives; that enables older people to contribute fully to their communities and supports them to enjoy the independence and opportunity that we are all entitled to expect in a modern Britain.

Increasing the effective retirement age needs to work against this background of flexibility and fairness; of community support and financial asset-building; of trust and choice. It can’t be considered in isolation from public attitudes or from the society we are trying to build for the future. But the reality of the challenges we face must shape these attitudes. I welcome this chance for a discussion and I look forward to exploring these ideas further in the coming months of our National Pensions Debate.

Thank you.

Stephen Timms – 2005 Speech to NAPF Conference

stephentimms

Below is the text of the speech made by Stephen Timms, the then Minister of State for Pension Reform, to the NAPF Conference in Eastbourne on 17th November 2005.

I’m grateful to Robin and Christine for the opportunity to be here this morning. I last spoke at an NAPF Conference in a rainstorm in Eastbourne, about six years ago, so I am delighted to be here on a beautiful autmunal morning today. And I’m grateful to the NAPF for all its contributions to the National Pensions Debate, on top of all the vital work it has been undertaking for over eighty years in guiding and supporting occupational pensions. We have been very appreciative of all the support and the creative generosity we have received from this Association – and from the industry more generally – in our preparation for pensions reform over the past months. And nobody who has seen the newspapers this morning will be surprised that its my view that we are going to need a good deal more support and advice in the months ahead.

Somebody told me a story from the 1950s at one of the recent National Pensions Debate events. William was over 80. He had started work on the farm at age 10. He’d wintered it and summered it, man and boy. And one day the young farmer said to him:

“William, you started on this farm with my grandfather, then you worked for my father, and now it’s me. 70 years faithful service. You have your State Pension I know – but I have decided to give you a few shillings a week, so that you can retire. How would you like that?”

“All right,” William replied, “if you want me to give up, I will. But mind you, if I’d known this job wasn’t permanent – I wouldn’t have started it!”

Actually, I haven’t found many people during the National Pensions Debate with that approach to work – my job as Pensions Minister would I suppose be a good deal easier if I had. But I do welcome the NAPF guide “Extending Working Lives: Adapting Pensions for an Older Workforce” to help trustees and managers through the age discrimination legislation and to attract a more age-diverse workforce. It’s a good example of this association supporting and encouraging the good quality occupational pensions which have put Britain in a position today where retirement incomes are better relative to everybody else than has been the case in the past, even though earnings have been rising so fast over the past few years.

Pensions Reform

The challenge of pension reform is one of the biggest we face in the months ahead. It is a challenge we relish, and I’m looking forward immensely to working hard with everybody here to get the key judgments right over these next few months. How to ensure we achieve a long-term approach balancing adequacy with affordability; continuing our successful drive to reduce pensioner poverty; making the system more understandable but also correcting historic unfairness, such as the way women have lost out because of a 1940s view of women as being dependent on their husbands.

Our aim is a ground-breaking political consensus, and we hope the National Pensions Debate will help us achieve it, working with MPs from all parties, not because we want to avoid a row, but because only a consensus can deliver the confidence – that we see as vital – that we are introducing a framework which will endure. We want to engage with insiders, experts in this association and elsewhere, and also with those who have never thought about pensions in their lives before but are increasingly realising how important it is for their future that we get these judgments right.

I am very enthusiastic about the task ahead, so that we can come forward with the Government’s response to the Pensions Commission report by about the Spring of next year. And I am looking forward to actually reading the Pensions Commission report – published in just under two weeks time – and comparing the real thing with the newspaper reports which have appeared today!

And once the report has appeared, we need to step up the debate in which with its proposals for a citizens’ pension this association has played such a creative part.

Occupational provision

Whatever the form of the state underpin which is adopted, it will for most people be the savings they make on top which will determine whether they achieve the income in retirement which they are aiming for. This has been the rationale for all our informed choice measures designed to inform people and make it possible for them to take control of their retirement planning.

As we embrace social and economic change; as people find themselves doing ten jobs in a career instead of one – or even having several careers – the support people require to stay in employment and to build their retirement income must also adapt to reflect fundamental changes in our society.

That’s why we are renewing the welfare state – with welfare reform proposals in the New Year that will go further in tailoring the support we provide to meet the new demands of individuals in the 21st century. And it’s why concepts such as portability and risk-sharing are becoming increasingly important for the success of private pension provision.

But two truths remain. First – work is the best pensions policy. We can’t tackle inequality of outcome in retirement without also tackling inequality of outcome during working life. And the workplace is the key. That’s why our aspiration of an 80% employment rate is so important. And we’re making progress – yesterday’s employment statistics showed the national employment rate back up to within a whisker of 75% – with 123,000 more people in work this quarter and over 330,000 more than last year.

The shape of the welfare state is crucial in the way we support people to prepare for retirement. To meet the challenges of supporting an ever healthier – but ever older population – we can’t afford to be denied the skills and contributions of all those who can and want to work. Our welfare reforms will be designed to capture this potential. The reforms will develop active support to help people contribute; they will be underpinned by the values of inclusiveness; they will balance rights and responsibilities. Respect for the individual will be matched by respect by the individual for society; and the need to help people lift leave dependency behind while continuing to provide support for those who simply can not work.

In all of this, nothing can be allowed to detract from the paramount importance of employer-sponsored pension provision. Employers are key and will continue to be the key to successful long-term pensions reform. It is impossible to envisage a successful future pension system which does not have a central role for employers at its heart.

The evidence speaks for itself. In 2004, nearly 80% of funded pension contributions came from employers. An employer contribution adds value to the pensions saving of an individual – and it acts as a catalyst for action from the employee too.

Research published earlier this month shows that with little or no employer contribution, the provision of information and advice alone in the workplace had very little impact on savings behaviour, on pensions knowledge or on attitudes towards pensions. It is very striking that the average take-up of a stakeholder pension where there is an employer contribution is around 70%. Where there isn’t a contribution it’s 13%.

Today’s NAPF survey again shows that participation rates are higher where employers operate auto-enrolment. Our own case study research has also shown auto-enrolment to be effective for increasing pension scheme membership, reducing administrative burdens for employers and pension providers and also making the whole process simpler for employees.

So I’m grateful to NAPF for vital pro-active work in supporting occupational pensions and in offering guidance to schemes to help them understand – and sometimes benefit from – new legislation. The new NAPF guidance on clearance is a good example. And all that work is going to be just as vital to our success in the future as it has been in the past.

Better Regulation

The contribution of the new Pensions Regulator is making sure that pension liabilities are being treated with a new seriousness today, and that is very welcome, but it isn’t blocking corporate re-structures. The case of Marconi is particularly encouraging – the takeover has gone ahead in a way that promises opportunities for employees; the shareholders are satisfied; and the trustees, who took independent advice, are also satisfied there will be appropriate protection for members’ benefits.

The Pensions Regulator will continue to examine each case individually, to find solutions to enable corporate activity to go ahead, while ensuring that scheme members benefits are protected. And that balance of economic dynamism with protection of members’ benefits is a key one.

The introduction of the Pension Protection Fund has provided a new and vital security for pension scheme members, helping build a renewed confidence for the future. I know that the board of the Fund understands very well how important their decisions about the Fund levy will be for all the schemes represented here, following the recent consultation.

Your survey today shows that the regulatory burden is one of the main concerns that schemes have over the next few years. We are determined to remove unnecessary regulation and simplify regulatory burdens wherever we can. We have set out one of the most radical programmes of regulatory reform anywhere in the world.

Over the next three or four years, this will deliver year on year reductions in administrative burdens. We will set targets for reducing the burdens arising from requirements for businesses to provide information. A rolling plan of simplification will focus on removing or merging regulation into a more manageable form; resolving overlap and inconsistency; and wider deregulatory measures too.

We can’t do this on our own – and we don’t want to try to. We can only get this balance right with your support. That is why I’ve established a Better Regulation Stakeholder Group with representatives of the pensions, insurance, and financial services industries. I’m pleased that Joanne Segars is a member of it and has volunteered to sit on the sub-group looking at the measurement of information burdens. We need all the help we can get to deliver the simplification that all of us want to see. So I will welcome from anybody here thoughtful, practical proposals for removing and simplifying regulatory burdens.

Setting up the new Trustee panel is another example of our seeking to keep under review the balance between regulation and member protection. Most recently our discussions of the draft Member-Nominated Trustee regulations really brought home to me the panel’s value. The members of the panel see issues from a more direct and personal perspective which is of great benefit to me and my officials. It gives me the opportunity of a reality check on some key issues of the moment. And its their view about what is important – I don’t set the agenda, it is very much their forum.

Socially Responsible Investment

That previous NAPF conference I spoke at was at the point where the Disclosure Regulations on Socially Responsible Investment were about to come into force. In my Ministerial roles across government since then I have maintain my interest in socially responsible investment and corporate social responsibility, and now back at DWP I am keen to see how the disclosure measure has worked in practice and what we can do to move things forward again.

Conclusion

So I am looking forward immensely to working with everybody here to strengthen and renew workplace pension provision, and to strike the right balance between regulation and protection.

We need the NAPF to be banging the drum for occupational pensions in the coming months – and I know I can count on you to deliver. In supporting employees who choose to work longer; through a renewed welfare state that enables people to lift themselves out of dependency; through contributing to and supporting employees in building their retirement savings – in all these respects, the workplace holds the key to the challenges of an ageing society.

If together we can harness the potential of the workplace:

– we can give people the support they need to escape long-term dependency

– we can empower people to take control of building an income for their retirement

– and we can look forward with confidence to the benefits and opportunities of longer and healthier lives.

We can build a new framework for pensions in the UK which will endure for the long term. I’m up for it. I know you are too. Let’s work together.

Thank you.

Stephen Timms – 2005 Speech to Employers Forum

stephentimms

Below is the text of the speech made by Stephen Timms, the then Minister of State for Pension Reform, on 22nd November 2005.

I am pleased to be here this afternoon and let me begin by expressing on behalf of my department by expressing the high value we place on the help and support we have received from the Employers Forum on Age over a number of years – and express our thanks for the partnership which we look forward to continuing for many years to come.

Life expectancy has been going up by two or three months every year for 25 years or more – and there is no sign of that trend flattening off. It is a wonderful transformation which means better life chances for all of us – and it is arguably the greatest achievement of our civilisation. But to make the most of the trend, we need to ensure that older people can continue to contribute for longer to our national life – for their benefit, and also because the economy is going to need them.

The Office for National Statistics has today published its new report “Focus on Older People”. It looks at demography, family and living arrangements, housing, employment, health, lifestyles, income and expenditure and it contains a wealth of fascinating detail. It’s accessible on the ONS website. The rising proportion of older people is very important as a backdrop to the activities of many parts of Government – the report points out that there are 20 million people aged 50 and over today – and John Hutton as Secretary of State will be the chair next month at a dedicated Cabinet Sub-Committee for older people which is going to be leading the Government’s response to the challenge.

I want to set out today our strategy to increase the opportunities for working longer; how we are taking it forward through three separate strands or work. It is a key issue not only for business success but also – as we were reminded last week – for pensions reform.

Opportunity Age

We published our cross Government strategy for older people, ‘Opportunity Age’, for consultation earlier this year, looking 10 to 15 years ahead. In his introduction, the Prime Minister made the point:

“the reality is that, as older people become an ever more significant proportion of the population, society will increasingly depend upon the contribution they can make.”

The question is how can we realise that potential?

Demographics

People are now living longer than ever before. And leading healthier lives. They are also spending longer in retirement. In the 1920s when the retirement age of 65, was introduced, the average life expectancy of a man was about 58. Now on average a person reaching the age of 65 can expect a healthy life to the age of 76, with average life expectancy higher still.

Extending working life first objective

The first strand is to remove the barriers to employment for older people and create more opportunities for them to work and save for longer. It has been striking in the National Pensions Debate over these past few months that everyone agrees that barriers to working longer should be removed.

The employment rate for over 50s has risen significantly since 1997. 71% of those aged 50 to state pension age were in employment in Spring this year – and, in addition, over 1 million more people aged over state pension age are in work, many of them part time or self-employed. But we still have a big challenge of over two and a half million people aged 50 to state pension age who are out of work, and we need to be doing better.

Many are out of the labour market for health reasons. Through our Pathways to Work pilots we’re testing better ways of helping people who claim sickness benefits to re-enter the labour market more quickly – and we have seen some dramatic improvements in the pilot areas. The more active approach we have been developing is clearly part of the solution.

We have been looking at how to bring together support from the health service with employment help. One of the Dragon Awards presented each year by the Lord Mayor of London was made last month to a GP practice in Camden which has an employment adviser based in the GP surgery. One of the GPs at the practice commented that the initiative had – and I quote – saved:

“an average of five consultations for every patient that wants to explore the possibility of getting back to work, or wants education and training advice. It has had a significant effect on the mental and physical well-being of patients, … lowered the amount of drugs, largely antidepressants, prescribed to patients [and] helped many people, who have been unwell but are willing to work, to change their lives.”

These types of new partnership are going to be part of the answer.

We know that, as well as the opportunity to work, older people need appropriate skills to work. We’re working closely with the Department for Education and Skills. For example, the New Deal for Skills, particularly skills coaching for people out of work and the Employer Training Pilots for those in work, will enable us to test new ways of improving availability of training needed by individuals and businesses, for the benefit of older people among others.

Extending working life second objective

The second strand is to create a culture change around retirement age and working longer, to tackle discrimination and to encourage positive attitudes to older workers.

Our Age Positive campaign has been tackling age discrimination in employment since 1999.

But more recently the announcement of age legislation prompted a growing call from employers – especially small employers – for more practical information and help. So we invited leading business organisations to work with us on guidance for the coming legislation, and to contribute to a short burst, high profile awareness and guidance campaign, to help employers adopt non-ageist practices in the run up to next October. The Be Ready campaign as it is called aims to change employers’ attitudes to age by challenging traditional views on subjects like occupational health, training, recruitment and retention, and encourage more flexible employment and retirement opportunities.

The Be Ready materials, launched last May, include best practice examples, case studies and research that we’ve developed with many employers to help bust the myths around age. They also contain more in depth guidance on the workforce management practices of Age Positive employer champions and the business benefits they experience. The materials are proving popular and the feedback has been very positive.

In the Spring, we’ll be updating the guidance with more information on flexible working and phased retirement opportunities, together with information about the legislation. Employer Forum on Age is contributing to the guidance with research with employers on their flexible retirement practices and procedures, to take advantage of changes in the pension tax rules from April and in preparation to comply with the new legislation from next October.

EWL and pensions (EWL third objective)

So the first two strands are removing the barriers to over 50s employment and promoting culture change. The third strand to extending working life is providing the incentive, and this we are primarily tackling through changes to the pensions system.

Our State Pension deferral policy has, from April of this year, increased the rewards for people choosing to work whilst deferring their state pension. So if you defer now for a year, then the state pension – that is basic state pension plus SERPS or State Second Pension – are increased by 10%. If you defer for another year, its another 10%. All the research shows that is a pretty attractive package for quite a lot of people – and for the first time there’s the option of taking a lump sum payment instead. We will be working to make those options better known over the next few months.

The tax simplification measures from April next year will mean that, for the first time, where scheme rules allow it, it will be possible to carry on working for the same employer whilst drawing from the employer’s occupational pension scheme. We’ve amended legislation to raise the minimum age at which personal pensions can be drawn from 50 to 55 years by 2010.

Pensions reform

In all these areas and across pension reform, our aim in pension reform is to engage in a national debate and to build consensus for a long-term pension settlement. That is not because we want to avoid a row, but because we think that consensus will be tremendously helpful in building the new confidence that we need around pension saving, that we are putting in place a new framework which will endure. We set out our principles for pension reform in February, for a system that tackles poverty effectively and provides opportunity for all to build an adequate retirement income.

The debate will no doubt reach a new and higher level when the Pensions Commission report is published a week tomorrow, and I welcome the wide interest there already is in what the Pension Commission is going to say. We will then want to analyse the evidence and consider the options and recommendations made by the Commission, drawing on the views expressed in the National Pensions Debate and the response which will be made to the Commission report, and respond next year with proposals for reform which I hope will command as broad consent as possible.

Conclusion

To improve radically the retention rates of older workers we need employers to increase the availability of flexible work and retirement opportunities, and so to help retain those at greatest risk of leaving prematurely and enable others to stay on beyond State Pension Age. A combination of active labour market strategies, removal of structural financial barriers and the greater availability of flexible work and retirement patterns will make it possible for a lot of people to stay in work longer and potentially to save for longer.

We recognise there is a need for help in how to retain older workers. I have commended to you the products of our Be Ready campaign. I hope companies will include older workers in all employment practices. Ensure they benefit from the training and promotion opportunities offered to younger staff. Make sure you have policies to manage poor performance and health issues. And be flexible and communicate with your employees. Make them aware that as an employer you value the diversity created by a mixed age workforce and offer alternatives to that cliff edge of retirement.

There are some key steps here to unlocking substantial gains for individuals, for businesses and for the economy as a whole. I hope we can work together as we learn how to make the most of these opportunities over the months ahead.

Thank you.

Stephen Timms – 2005 Speech to ABI Saver Summit

stephentimms

Below is the text of the speech made by Stephen Timms, the then Minister of State for Pension Reform, to the ABI Saver Summit on 5th December 2005.

I’m very pleased to be able to join you this morning at what is unquestionably a crucial point for pensions reform. And I want to acknowledge the way in which the Saver Summit has established itself as a central forum for the pensions industry to come together and focus on the challenge of helping people save adequately for retirement. Following publication of the Pensions Commission report last week, the importance of pensions reform has perhaps never been higher on the public policy agenda.

Building on progress so far

Our 2002 Green Paper first highlighted the need for people to save more or work longer to achieve the retirement income they want and expect. It established the Pensions Commission to review long-term progress. And last year, in its initial report, the Pensions Commission calculated that nearly 10 million people are not saving enough for their retirement. I’ll be interested to see the findings of your annual State of the Nation’s Savings report when the results are published later today.

But the scale of the challenge we face is clear. I don’t intend to focus on that this morning – except to make two important points.

Firstly that we have made significant progress over the past eight years. It was right to focus on the short-term crisis of pensioner poverty that we faced when in 1997. In lifting nearly 2 million pensioners out of absolute poverty; in spending £11 billion extra each year on pensioners with almost half of the extra going to the least well-off third; in virtually eradicating abject pensioner poverty; in making all those improvements we have built a foundation on which to encourage people to save. Pension Credit has been instrumental in achieving this progress, and it also means that, for the first time, people with modest private savings could be rewarded rather than penalised pound for pound for the savings that they had made.

Our focus today on encouraging people to save more would have made no sense in a world where large numbers of single pensioners were living on £69 a week, and all of them faced the disincentive to saving of pound-for-pound withdrawal.

Progress in boosting confidence in private pensions has also been crucial in building a foundation for long-term change. Last year’s Pensions Act – establishing the Pension Protection Fund, the Pensions Regulator and the Financial Assistance Scheme – addressed directly the problems in defined benefit occupational pensions, boosting confidence and security for pension scheme members. And the introduction of the Sandler Suite and the Stakeholder Pension has also been an important step in facilitating low cost private savings.

These are the measures which have provided the platform on which now we can build a pensions settlement that will endure for the long-term and provide security in retirement for generations to come.

But my second point is perhaps a more important one. That is, that a great deal of the progress we have made so far, especially in terms of private saving, is a result of the partnership between Government and the industry.

The ABI has been a very important partner for us – in advancing the informed choice programme; leading the consortium on the Pensions Information Pack; working with the Association of Independent Financial Advisers on the new fact sheet on contracting out; supporting the Financial Services Authority in its strategy for financial capability; and responding to our consultations.

I want to express thanks to the ABI and to the industry as a whole for continued support in our work on pensions reform. We need the voice of industry to be at the heart of our response on the report of the Pensions Commission. The success of long-term pension reform will hinge on Government and the pensions industry working together with employers and employees. We are appreciative of the support so far – and we are going to need a great deal more support in the months ahead.

The Pensions Commission report

By now, everyone will have had the chance to at least take a first glance at what the Pension Commission recommended last week. The Commission – a former CBI Director General, a former TUC President and a distinguished Professor at the London School of Economics – produced an impressive unanimous report. I would characterise it as comprising essentially four bold ideas:

1. Auto-enrolment into a national system of personal accounts;

2. Mandatory matching employer contributions amounting to 3% of salary;

3. Basic state pension linked from 2010 to earnings rather than prices;

4. A gradual increase in state pension age in line with rising life expectancy, starting with a rise to 66 during the 2020s.

The Commission has done a very impressive job. They have sifted a lot of evidence; they have weighed a great variety of opinions; and they have carried out a lot of impressive analysis of their own. They have produced a set of recommendations which address the concerns people have been raising and which hang together in a coherent way.

We welcome the broad framework of the Commission’s proposals and options – and we believe they are the right basis for the debate to come. There is much to be discussed and decided on the detail of that framework and our response must meet the five tests we have set out – that is that our overall package of reforms must promote personal responsibility; must be fair, affordable, simple and sustainable.

We are now going to be studying the recommendations very carefully. I hope that everyone else will study them carefully as well, and let us know what they think.

The next steps

The Pensions Commission has called for a national debate about the right way forward and that it should start as soon as possible. We are going to be stepping up the National Pensions Debate – talking to people of all ages and in every section of our community. And our intention is to come forward in the Spring with Government proposals for reform, which I hope will be on the basis of as broad a consensus as possible.

The Pensions Commission were very clear in their first report that there is not a pensions’ crisis now. But the pensions of tomorrow depend on the decisions people make to save today. They argued that the failure to respond to this challenge would lead to a crisis in 20 years time. If we do nothing, future pensioners will be 30% worse off relative those in employment, than they are today.

So we need to study the Commission’s recommendations in care rather than in haste – but we can’t afford to put off our response to the challenges they have laid out. We need to build on what has been achieved and ensure now that people can plan with confidence decades ahead for retirement.

A challenge to ABI

Each of the bold ideas proposed by the Commission raises a host of questions which will need to be answered over these coming weeks. The ABI – together with the NAPF and others – have welcomed the principle of personal accounts, but questioned the particular form described by the Commission as the National Pensions Saving Scheme. The Association takes the view that – given a level playing field – it can put together an industry-led model which will do the job better.

Today, I want to issue a challenge. To the ABI, and all those in the industry who take the view that they can produce a better model for personal accounts. I want to challenge you to work up the details of your alternative approach by February in the new year. Then as part of the National Pensions Debate I’m going to ask the ABI to host a joint-event with Government for you to present your alternative model.

There are two principle criteria that any alternative model must meet. Firstly, it must achieve a radical extension of coverage – to include many who have lost out before, such as lower and moderate earners, the self-employed and those working for small employers. And secondly, it requires a radical reduction in cost – in terms both of low management charges and of reduced administration costs for business.

To achieve a major expansion of workplace savings, the model also needs to reflect changes in the workplace. So portability, reliability and speed of delivery will also be important.

But if you can present a detailed, workable model that meets these criteria and can match the Turner version for a comparable level of charging, then that will be very attractive to us in Government. The decision when we make it will be a pragmatic one. We are serious about building consensus, and we are in no doubt as to the potential attraction of an industry-led model.

We also mean what we say about getting on with reform. The choice is over how we act – not whether or when. With our aim of a White Paper in the Spring, we need to move quite quickly to develop the elements of a reform package which can be widely supported. So I am asking you to come forward with the model in February.

I hope you will work with my officials at the earliest point in building up the detail of your ideas. The prize here is not for any one individual or group, but for society as whole – when we deliver a radically new savings product extending to everyone the opportunity to save affordably for a pension.

Conclusion

I hope you will also engage with us as we debate the other elements of a long-term settlement – and as we assess the right balance of State pension support to underpin a rapid expansion of private saving. We need a solution which is affordable to the public finances. The next few months are going to be crucial for everyone who wants a long-term, sustainable pensions settlement. There is a big prize available and its one we are determined to win.

So my appeal is that we should be working together over these critical next few months –the financial services industry, Government, employers large and small and trade unions. A long term settlement represents a great opportunity for all of us. Let’s make sure we achieve it.

Thank you.

Stephen Timms – 2000 Speech to British Insurers

stephentimms

Below is the text of the speech made by Stephen Timms, the then Financial Secretary to the Treasury, to the Joint Association of British Insurers / British Venture Capital Association Conference on 29th February 2000.

Introduction

Thank you for inviting me to speak, and for organising this conference, on what is an extremely important issue for our economy.

Let me just first set this in the context of the government’s wider aims.

My favourite way to explain what this Government is trying to do is that we are building a new Britain which will be modern and decent – fair and enterprising – both of those things at the same time.

The first economic priority after the election was to achieve a new stability in the UK economy after decades of boom and bust. That has been achieved in a remarkable way, so our focus now is on locking in that hard won stability, and building on it for the future. It gives us the chance to express a new optimism about the future, and so the Chancellor set out at the Pre-Budget Report in November four new ambitions for Britain in the coming decade which encapsulate what we are trying to do:

That we should be closing the gap with our competitors on productivity after years of slipping behind;

That we should have a higher proportion of the workforce in employment than in the past, and keep it like that. Actually, we already have more people in work than ever in our history, but we want to achieve the highest proportion and on a durable basis;

That for the first time over half of our school leavers should go on to study for a degree;

That we should halve the number of children living in poverty, on the way to the Prime Minister’s target of eradicating poverty altogether within 20 years.

The Chancellor this morning, speaking in my area in East London, set out more of his thinking along those lines as he prepares for the budget in three weeks time.

Institutional investors have a key role to play in making all this happen, providing the finance so that our high-growth businesses can become world-class businesses.

I want to speak briefly about the key building blocks we are putting in place, building on this new foundation of stability, to create a new culture of enterprise and entrepreneurship; where institutional investors can flourish and contribute – with private equity and in other ways – to the changes we are working to achieve.

Competition

The first building block is the most pro-competition policy in the world. Greater competition at home is the key to greater competitiveness abroad. So we are asking in every area what we can do to enhance competition and opportunity. We are building on the decision to create a new independent competition authority with our new Competition Act which contains new powers to prohibit anti-competitive practices.

For cartels and anti-competitive behaviour, the Office of Fair Trading will be given new investigative resources and trust-busting weapons, including the power to impose fines of up to 30 per cent of turnover.

For banking and financial services, the Financial Services Authority will now, for the first time, be required to facilitate competition – with a new scrutiny role for the competition authorities.

For the regulatory system, the government will consider how to scrutinise regulatory bodies and review existing and proposed regulations to ensure that they are promoting – not impeding – new entrants and new investment, and the joint work by BVCA, ABI and NAPF will feed into this process.

In sum, Britain is open to competition, and at the leading edge of change. And nothing should stand in the way of greater competition in every sector of every industry.

A more favourable tax environment

A higher degree of enterprise calls for higher levels of investment and entrepreneurship. So our second building block is the best tax environment for investors in start-ups and high tech businesses, with improved rewards from enterprise and wealth creation. On tax a great deal is being done:

On business tax, we have already cut small business tax from 23p to 20p and introduced a new starting rate of tax for small companies of 10p in the pound. Every company making profits of up to 50,000 pounds will benefit.

Corporation tax has been cut from 33 to 30 per cent. To encourage and reward new business investment, we have cut the long-term rate of capital gains tax from 40p to 10p. We have proposed a cut in the taper so that those investing for five years will pay only 10p and for three years only 22p. Final decisions – following our public consultation – will be announced in the Budget.

A new R&D tax credit will, from this April, also mean that nearly a quarter of new investment in small and medium-sized business research and development is under-written even before a penny profit is made.

The Budget will introduce a new tax incentive to promote corporate venturing too. Large companies investing in growing companies for a specified period will receive a tax relief of 20 per cent, underwriting one fifth of their investment. This 100 million pounds incentive can bring Britain additional investment of 500 million pounds every year.

We need to encourage those who already have a successful track record to play a key role in building up small high-risk companies. We recognise the significant role stock-options have to play here and we are currently looking at the role of employer NICs charges which we know is causing concern particularly in the entrepreneurial community.

We are introducing a new targeted tax cut for people with skills and talent who are prepared to move from safe, secure jobs to risk time, effort and savings to create wealth in a more challenging environment. From next year, a third approved option scheme, the Enterprise Management Incentive, will enable growing enterprises to offer their key employees tax-advantaged options over shares up to £100,000.

That measure reflects our recognition that nearly a quarter of all UK business failures are thought to be directly attributable to poor management practice. For Britain to succeed in the knowledge driven economy we need to raise our game. We want to take steps to ensure that our smaller firms can recruit and nurture the best talent, rewarding the real risk takers who are creating wealth and jobs.

Venture Capital

Turning to private equity and venture capital – the particular interest of this conference – we want new encouragement from the venture capital industry and from institutional investors for investment in start up and early stage ventures. The problem here is not so much access to finance but finance on the right terms.

We have already the best developed venture capital market in the Europe, and we are the focal point for US investors looking for access to Europe=s growth companies.

Our venture-backed growth companies are proven job-creators. Between 1993 and 1997, employment in VC-backed companies rose by 24 per cent compared with one per cent for the economy as a whole.

BVCA’s own survey of the economic impact of venture capital showed that VC-backed companies now account for 2 million jobs in the UK, or 10 per cent of the private sector workforce.

Venture-backed growth companies are also proven sound investments, as the record of overseas investment demonstrates. The last speaker (Anne Glover) also showed that returns to early-stage investments are increasing.

In 1998, overseas sources provide three times as much finance for VC-backed companies as UK sources. Overseas pension funds are now the largest single source of funding for our VC-backed firms, and overseas banks are the second largest source. I was in Cambridge a few weeks ago and the venture capital specialists I met there made the point that there was a very high level of interest from elsewhere in Europe in venture investment in start up firms there.

UK pension funds invest less than one percent of their money in venture capital. In the US, the comparable figure is closer to six per cent. And in 1998, UK insurance companies represented only 3 per cent – £152 million – of money raised by the UK venture capital industry.

We cannot – neither would we want to – make UK insurance funds invest more, but I would encourage them to look very carefully at all their options and make sure they are alive to the opportunities around.

Last year, following a speech by the Prime Minister, three leading consulting actuaries and benefits consultants (Bacon and Woodrow, William M Mercer and Watson Wyatt Partners) welcomed the Government’s call for a more enterprising approach to the investment of institutional assets. They considered that the time had come for some institutional investors to put more emphasis on other opportunities, particularly unquoted securities. We will shortly be discussing with the actuaries concerned what the response has been.

To help institutional investors take the leap to invest in early-stage venture capital, we are taking forward a UK High-Technology Fund and nine Regional Venture Capital Funds to invest in early-stage high growth businesses which have historically found it difficult to raise finance. The funds will be run by experienced fund managers and will complement existing market provision, using public resources in partnership with private sector funds to address recognised gaps in the market. And all the funds will invest on a wholly commercial basis, expecting robust commercial returns.

Making Britain the knowledge capital of the world

The third building block for our enterprise Britain open to all is to make Britain the knowledge capital of the world.

Knowledge is the key to future business success. Our future competitiveness and prosperity will be directly related to our creativity, our imagination and our knowledge base. That puts a great premium on education and skills. I have visited a number of our universities in recent weeks ­ Cambridge, Oxford, Warwick, Newcastle, Durham, Sheffield ­ to have a look at what they are doing to commercialise the superb research which is being undertaken by them and I have been heartened by what I have seen.

That premium on education and skills in the modern economy is exactly why we are pushing through huge educational reform, investing an extra 19 billion pounds in education – so that everyone has the opportunity to master the skills and technologies of the new information age.

In 1997, barely one in ten schools was connected to the Internet. Now, two thirds are – the most in any G7 country. The number of primary schools connected has gone up four fold in the last year. By 2002, every school will be connected.

And this year, we are working to raise education levels amongst adults: a whole network of adult learning centres is being created; incentives are being provided to upgrade skills; and a new University for Industry which uses internet and digital TV technology will be bringing education into the home and workplace.

These reforms will help in the next stage of the technological revolution which we are determined to lead.

Our target is that within three years we want to become the world’s best environment for e-commerce. This is a huge challenge for everyone: Government needs to put in place the right framework and lead by example; individuals need to get skilled; and business needs to be confident and sufficiently ambitious to grasp the new opportunities.

Conclusion

There is a great deal at stake in getting all of this right. But we are optimistic.

We have started with a foundation of a new stability which we are determined to lock in. The building blocks we are putting in place now for an enterprise Britain open for all – in competition, in investment and enterprise and in the knowledge economy – those building blocks will help British investors and entrepreneurs make the most of the challenges ahead.

Thank you for the contribution you are making, and let’s work together to make this a success for all our people.

Thank you.