Stephen Timms – 2005 Speech to ABI Saver Summit


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.


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.