Recent years have seen sweeping changes to our pensions system. As the new Minister for Pensions I have the opportunity to continue with this momentum.
As our population ages, it is more important than ever that we help working people plan and prepare for their retirement, and work for as long as they want to, while at the same time we safeguard the incomes of today’s older people.
After many years working on policy as an independent adviser, I have now been given the chance to work inside Government to drive policy forward.
This is a huge responsibility, and I am aware of the hard work that lies ahead of me. We must continue to ensure today’s workers can save for their retirement with confidence.
The automatic enrolment system introduced in 2012 has encouraged more than 5.2 million people to save for the first time or save more into a workplace pension, and we expect that by 2018 this will increase to around 9 million people.
This is hugely important – most of us can expect to live longer than ever before and must save for our futures if we are to enjoy our later years in comfort. Of course, having been automatically enrolled into a workplace pension, people can choose to opt out.
But what is particularly pleasing for me is that younger workers are the least inclined to do so. That doesn’t mean we can become complacent though – it is essential we put in place protective measures and cement people’s trust in their investments.
I passionately believe the new pension freedom reforms – which mean people are no longer forced to spend their “money purchase” pension pots on buying an annuity – are vital in allowing people to make the most of their hard-earned savings.
Three months into the reforms, and the market is working hard to adapt to the new rules. Some pension firms are acting positively, but the whole industry needs to pull its weight and treat customers fairly.
The Government is due to launch a consultation shortly, designed to strengthen people’s rights to access their money flexibly and remove unjustifiable barriers. It is essential that pension savers get a fair deal, and I want to make sure that happens.
I also realise that many people were forced to buy a poor value annuity in the past that may not have been suitable for them and this is something we are actively looking at. I remain hopeful that we can give people in this position new options.
Next April will see the introduction of the new state Pension, replacing the complicated multi-tiered current system of basic and additional state Pension as it exists today. The new state Pension is for everyone who retires on or after 2016. We continue to support those who have worked hard all of their lives in later life.
This reform will improve pensions for many women, carers and self-employed people. For example, in the first 10 years, analysis suggests that around 650,000 women are expected to receive on average £8 a week more in state Pension thanks to the new system.
While this is great news, it would be wrong to assume that everybody who reaches state Pension age on or after 6th april will receive the full amount. It remains a contributory system and – quite rightly – you get out what you put in.
To make sure those who continue to receive their pension under the old rules are not left out, we are introducing state Pension top-up in October this year, which will enable people to purchase up to £25 a week additional state Pension.
And we will also keep our promise to protect the triple lock on the basic state Pension. This guarantees that existing pensioners can enjoy the benefit of a meaningful increase each year, uprating their pension by whichever is the highest of earnings, inflation or 2.5 per cent.
In 2008, the basic state Pension sank to the lowest level relative to average earnings since the 1970s. The triple lock has turned this around and since 2010 the basic state Pension has risen by £560 more than if it had been just uprated by earnings.
From inside Government I intend to remain dedicated to championing the rights of consumers and standing up for financial fairness, while working with the industry as we all adapt to the changing pensions landscape. Ultimately, it will benefit everyone if we can find ways to improve customer experience and satisfaction.
It’s an exciting time for the world of pensions and it is essential we continue progress for today’s pensioners and future generations. I will try hard to make pensions work better for people – whether they are in receipt of one now or looking forward to doing so in the future – and hope to be able to make a real difference.
