Pension plans ‘will last for generations’
The government has today unveiled a radical shake-up of the pensions system, with an increase in the retirement age and new ways to make people save for their old age.
Tony Blair said the pensions white paper would create “something that lasts not just for this generation, but for generations to come”, and insisted it would “give people a future to look forward to, rather than one they are fearful of”.
The proposals are largely based on the recommendations of Lord Turner’s three-year inquiry into pensions, and were described by work and pensions secretary John Hutton as a “comprehensive, integrated package of reform”.
“I believe [they] can lay the foundation for a new and lasting consensus on a long-term resolution of the pensions challenge in this country,” he told MPs in the Commons.
The white paper calls for an increase in the retirement age to 66 in 2024, to 67 in 2034 and to 68 by 2044, something that is bound to be controversial but the government insists is necessary due to increased life expectancy.
It would also restore the link between the state pension and earnings rather than prices to make it more generous, and reduce the use of means-testing through the pension credit, to encourage people to save for their old age.
However, where Lord Turner called for this pensions link to be restored in 2010, Mr Hutton today announced it would probably be restored in 2010, but the decision would be taken in the next parliament.
Shadow pensions secretary Philip Hammond warned this was the “financial equivalent of kicking it into the long grass”, and said it was the introduction of means-testing by Labour that had reduced people’s savings and led to today’s problems in the first place.
Under other provisions, employees would be automatically enrolled in a national savings scheme, into which they would pay four per cent of their salary, their employer pay three per cent and the government provide one per cent in tax relief.
Although people could opt-out of the scheme, ministers believe it would make it easier to save – however, the suggestion has already prompted concern from small business groups, who believe compulsory contributions could bankrupt many of them.
In addition, to address the fact that just 30 per cent of women are entitled to the full state pension, Mr Hutton announced a new credit system to ensure everybody’s contribution to society – including those who care for children or the elderly – counted towards their pension.
This is a departure from the Turner proposals, which suggested the system of national insurance (NI) contributions should be replaced with a new entitlement based on residency in the UK, to cover people working part-time and doing domestic work.
Mr Hammond welcomed the effort to tackle the problem of women’s pensions, but warned that under the government’s plans, in which only 30 years of NI contributions were needed for a full state pension, many women would still lose out.
“This announcement offers nothing to the millions of women currently receiving inadequate state pensions or to those who will retire in the next few years,” he said.
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