Speech To London & South East Copas

The Future For Occupational Pension Schemes

The Occupational Pension Scheme was the most important social welfare development of the 20th Century.

It was well-funded Works pension schemes that transformed the conditions in which our elderly were able to live. For generations now, we have seen each new group of recently retired Occupational Pensioners doing better than the last.

When I entered Parliament in 1992, I made my Maiden Speech about the plight of the Maxwell pensioners. I was an early member of the All Party Maxwell Pensioners Group and of the All Party Group for Pensioners, as it then was.

I pay tribute to the careful work which COPAS has done in representing the views of pensioners to Government. I particularly remember the submissions which you made to the Goode Committee and the way in which you stood up for Occupational Pensioners and your promotion of pensioners’ associations.

It is important that the interests of pensioners should not be overlooked by trustees or employers. There is always a danger that those who have ceased to serve a company may not be given proper consideration. You ensure that this is not so. 

I believe that there is cause for real concern about the future for Occupational Pensions. A number of factors have come together to create a crisis:

The Minimum Income Guarantee and the Pension Credit have extended entitlement to means tested benefits to almost 60% of pensioners. This means that many pensioners with modest savings or an occupational pension are no better off than someone without. The concerns about the extension of means testing are twofold:

Firstly, the message to current workers and employers is a poor one. It is that if you are on a normal income it is barely worth saving for retirement, since the resulting pension will be eaten up by the means test. Secondly, although these benefits may appear generous, they are not being delivered to those most in need. £1.8 billion per annum of means tested benefits are simply unclaimed by the pensioners who are entitled to them. 300,000 pensioners do not claim Housing Benefit. 770,000 do not claim Minimum Income Guarantee – a third of those entitled. 1.4 million do not claim Council Tax Benefit. It is set to get worse with almost 2 million pensioners estimated to be unlikely to take up the new Pension Credit. 

The costs of providing pensions have increased. With low interest rates, savings such as Gilts have earned less and more have been needed to secure pension liabilities. There have also been major increases in estimates of longevity. The effect of this is to make pensions more expensive. 

The Chancellor’s Role – Gordon Brown has increased tax on pension funds with the abolition of Dividend Tax Credits by £5 billion per annum. It is predicted that schemes have very substantial deficits now. This is predominantly the result of the Chancellor’s action. 

The crisis is made worse by the uncertainty and loss of confidence which people feel following the Maxwell pensions crisis and now Equitable Life. A recent poll for YouGov showed that only 4% trust the Government to keep its word on pensions. There is also a loss of trust in employers and pension providers.

We are seeing a rise in closures of schemes to new members. The rate has doubled in the past year and six out of ten schemes are now closed to new members.

The National Association of Pension Funds has warned that there are a ‘large number of schemes which are now moving towards wind-up’. So, the Government’s policy is leading to an ineffective, under funded system which will not meet the needs of future pensioners. You ask: What needs to happen? The Government has consulted 38 times since 1997. They are at it again. It is rather disappointing that the Green Paper contains so many measures which have been consulted on so many times, but upon which so little action has been taken. It is true that the Inland Revenue Paper has advantages and is a basis for reform, but overall the impression is that the Government’s response does not measure up to the scale of the crisis.

Various bodies such as Help the Aged, the IPPR, the CBI, the NAPF and others have suggested that a simplification of the State system is needed if we are to have an understandable system which encourages saving. They suggest that the Basic State Pension, the Second State Pension and the Minimum Income Guarantee should be combined together into a larger Basic State Pension with the aim of floating pensioners off means tested benefits by providing better entitlements. 





In his speech last year to the CBI, my colleague David Willetts MP, suggested that this was an attractive approach which deserves further investigation and consultation. If it is possible for a consensus to emerge along these lines, we would certainly wish to be part of it. 

Last year we suggested that instead of the over-complicated Pension Credit, it would be better to give a good increase in the Basic State Pension for over-75 year olds – the poorest group of pensioners and predominantly women. 

We have also proposed a new vehicle for saving, the Lifetime Savings Account. This would put a Government contribution into an account for every pound saved by the individual. It would be possible to withdraw from your savings, but the Government funds would only be available if withdrawals had been replaced. The account would mature with retirement. This would provide a more flexible form of saving and enable individuals to call on their savings as required. Although the strict lock-in of a pension scheme would be loosened, we believe that this form of saving would be more attractive to those on low and middle incomes.

We have also continued to support reform of the law, which requires an annuity to be purchased at age 75 years. This rule forces many individuals to purchase an annuity at a poor rate. We believe it should be possible to defer the decision to purchase an annuity indefinitely if necessary.

These sorts of reforms would provide for a better building block of the Basic State Pension, would be fairer and solve many of the problems of take-up. The Lifetime Savings Account would provide a simple incentive to save and give modern day flexibility to the savings regime. The annuities change would mean that individuals were not forced to make a bad bargain. 

Our aim should be to rebuild incentives to save, to improve levels of confidence in order to support the present structure and also to develop new patterns of saving for retirement. 

Policies for retirement are at the centre of public debate today and I feel honoured to have been invited here today to address you on this important subject. Politicians must develop ideas, which are up to the scale of the crisis. In pensions the Government has failed and we must respond.