Government Minister sets out "historic changes in pensions" to Mature Times readers

05/03/2008

Writing exclusively for the Mature Times, Mike O'Brien, Minister of State, Department for Work and Pensions, sets out the Government's vision for the future provision of pensions in this country.


When we began to transform the pensions system a decade ago, it was seen as a dusty subject only of interest to people over 50 and industry experts.

 

But issues, such as the increasing number of older people and rising expectations for retirement, have pushed pensions up the agenda so more and more people of all ages are recognising their importance. Despite this, it's an uncomfortable fact that around seven million people aren't saving enough for retirement and risk a significant drop in their income when they do.

 

There are a number of reasons for this inertia, not least the tendency for people to switch off and do nothing in the face of an overtly complex pensions system.

 

So to tackle this problem of under-saving, from 2012 we propose to automatically enrol millions of people into a good quality workplace pension scheme or a system of personal accounts.

 

This measure is the main plank of the Pensions Bill 2007, currently going through parliament. If passed, it will mark one of the biggest leaps forward since Lloyd George first introduced state pensions a hundred years ago.

 

For the first time, participating employees will have a guaranteed contribution from their employer towards their pension. The employee will put in a minimum of four per cent of their salary, the employer a minimum of three per cent and around one per cent comes from the Government in tax relief. This means individuals' own pension contributions will be doubled.

 

People can opt out if they wish, but automatically enrolment into a qualifying scheme will give those who want to the opportunity to provide extra for when they retire.

 

Of course, investing in a pension will never be risk free, but for our reforms to work it's essential that people understand this clear message: for the majority, not saving would be the most risky and least comfortable retirement option.

 

The reality is that most people who work or care throughout their working life can expect good returns if they save. For those who experience unfortunate or unforeseen circumstances then Pension Credit provides a safety net.

 

What is vital is that we deliver a package of reforms that strikes the right balance between personal responsibility and making saving attractive.


To ensure we approach this issue constructively, we are working closely with lobby groups, industry experts and opposition parties to achieve a shared understanding of the issues and trade-offs that are involved.

 

So people have added confidence and security in the system, we've created the Pension Protection Fund (PPF) and the Pensions Regulator to safeguard private occupational pension schemes. The PPF provides a vital safety net, creating a kind of insurance fund that covers 90percent of the value of peoples pensions, while the Pensions Regulator oversees the pension system as a whole to check that unscrupulous or negligent pension schemes are not damaging it.


Thanks to Pension Credit a million pensioners have been lifted out of relative poverty, so for the first time ever, a pensioner is no more likely to be poor than anyone else.

 

Help with Council Tax payments and rent is also available. Pensioners, whether poor or not, have gained from entitlements to the Winter Fuel Allowance, free bus transport, free eye sight tests and free TV licences for the over 75s.

 

Another simplification means the poorest pensioners can now apply for up to four benefits in one phone call. Fifty thousand pensioners will gain from this measure by 2010. In July 2007, the Government passed laws to simplify state pensions and reduce the inequalities between men and women.

 

For example, from 2010 the number of years someone must pay National Insurance contributions to get a full basic state pension will fall from 39 for women and 44 for men to 30 years for everybody. As a result, the number of women getting a full basic state pension will rise from a third to more than 90 % in future years.

 

Overall, this Government has transformed the UKs pensions system to ensure a better financial future for both today's and tomorrow's pensioners. These reforms have made the system simpler and more generous and given people a solid basis on which to save. And while many of these changes may not hit the headlines, they shouldnt be underplayed. They are radical and far-reaching, and as MPs debate the complex provisions of the Pensions Bill, there's no doubt history is being made.

 

 

For more detail visit the link below.


Your views on this issue are welcome. email: editorial@maturetimes.co.uk

 

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