16 July 2004

Malcolm Wicks MP, Minister of State for Pensions

North East Chamber of Commerce

16 July 2004

(CHECK AGAINST DELIVERY)

Good afternoon. I’m pleased to be invited to talk to you today about what we’re doing to enable people to make plans for their retirement. I’m particularly pleased to be here because I believe that employers have a crucial role to play in helping people plan for their retirement. Government and employers need to work together if we’re going to see people in retirement having the lifestyle they expect.

I’m going to focus on our Informed Choice Programme – which is designed to give people access to the information and tools they need to make appropriate choices as they plan for their retirement. And, as you’ve already heard, one vital part of Informed Choice is the combined pension forecast.

But first, I’d like to take a few moments to put this initiative into context. It’s not so very long ago that no one – apart from the specialists – wanted to talk about pensions. Now, there’s scarcely a day goes by without an article in a paper or a feature on the TV about pensions. I’m told that Tuesday’s Sun carried an article, on page 3 no less, about the need to plan and save for retirement!

While some of the media coverage has overstated the problem, it has at the very least succeeded in raising the profile of pensions and that is no bad thing. We want people to get into the habit of giving themselves a pensions health check in the same way that they get regular health checks.

It is important that people make plans in good time to ensure that they have the level of income in retirement that they want. Changing demographics and higher expectations for retirement mean that people need to make appropriate decisions in good time if they are to enjoy the retirement that they want.

Of course, these changes are to be welcomed, but they bring with them important challenges which we must address. In the UK, our mixture of state and private pensions has served us well. But we are aware that barriers remain that prevent people from taking advantage of the opportunities available to them. For example, 4.6 million people who have access to an occupational pension scheme have not joined it. For some, this may be the correct decision, but for many, inertia and confusion prevent people from making any decision.

We are taking steps to address the barriers that prevent people saving. Informed choice is one element of the Government’s overall pensions strategy but the Pensions Bill, currently progressing through Parliament, will deliver on our programme of simplification and member protection.

The Pension Protection Fund will protect members of defined benefit schemes by paying compensation if their employer becomes insolvent and the pension scheme is underfunded.

The Pensions Regulator will replace the Occupational Pensions Regulatory Authority (Opra) from April 2005. The new regulator will be a more flexible and proactive, focused on tackling the risks to members’ benefits.

In April 2005 we are launching the new range of stakeholder products. These are simple, risk-controlled, price-capped products based on the model of the stakeholder pension. These products will make it more economic for providers to engage with consumers and will enable more people, particularly those on lower and moderate incomes, to increase their saving for retirement.

We’re also making radical changes to simplify the taxation of pensions. The Finance Bill will sweep away the existing eight tax regimes and replace them with one single set of rules for all, with a lifetime limit on tax favoured pension savings. We are also reviewing the way the Financial Services and Markets Act operates because employers have told us that it prevents them from giving their employees information about their company pension schemes. We want to retain the key protections of the current regulatory regime but help employers assist their employees make appropriate and well-informed choices.

These measures will increase confidence and make pensions simpler, but we believe that a key building block for any retirement planning is a good understanding of what individual choices will mean. In other words, people should have the information they need to make an informed choice.

We set out our plans for Informed Choice in February this year. We put forward a strategy based around three steps:

Steve McCall has already talked to you about combined pension forecasts. These are a central pillar of our Informed Choice programme. The combined pension forecast service is growing at an encouraging pace. Already we have provided State Pension information for more than 1.7 million combined pension forecasts. But we want to encourage more employers to participate. We have a goal of issuing 6.3 million combined pension forecasts by the end of 2005/06. We believe that we can achieve this and would like you to be part of this programme.

We want to work in partnership with employers to provide CPFs. We have nevertheless made it clear that we will introduce a requirement to issue combined pension forecasts if employers and providers are reluctant to issue them voluntarily. Therefore, in the Pensions Bill currently before Parliament, we are seeking powers to enable us to make it a requirement for trustees or managers of occupational or personal pension schemes to issue combined pension forecasts. We will only use these powers if the voluntary approach fails.

Earlier this afternoon, you heard from Asda about the benefits they have seen in sending combined pension forecasts to employees. I would like to build on this and encourage those of you who have a company pension to issue CPFs. DWP officials will be on hand today to give you all the information that you need to take advantage of this service. If you offer a stakeholder pension, I’d ask you to talk to your provider and encourage them to offer CPFs, if they don’t already do so.

We have today published independent research into the experience of employers operating the combined pension forecasting service. Overwhelmingly employers said that their involvement had been worthwhile and they would continue their involvement with the service. They would also recommend the service to other employers or providers; and, perhaps most importantly, state that issuing forecasts have helped employees understand their likely financial position in retirement.

Employers said that issuing CPFs enabled them to be seen as a good employer and increased the value that employees placed on their pension scheme. Most employees interviewed welcomed their employer’s participation in the service and felt that the forecast had given them a useful prompt to consider the options available to them. One employee said: “It gives everyone a kick start to sort out their finances for retirement – it really makes people sit up and take notice.”

We’ve listened to what employers have told us about the way the scheme operates and we believe that we’ve made a “good” service even better, by streamlining some of the steps that employers need to take.

To complement the forecasts we send out, we plan to introduce an on-line retirement planner. The forecast will act as a prompt and the planner will provide more information.

Many people who receive a pension forecast will want to think more about their options and the on-line planner will enable them to do this. The retirement planner will allow people to obtain State Pension information, combine it with occupational or private pension information and help people work out what income they’re likely to need in retirement. It will also suggest steps that people can take to increase their retirement income – possibly by saving more or working longer or a combination of the two.

Of course, pension forecasts and on-line planners on their own are not enough. They are a vital first step in delivering our Informed Choice Programme but, by themselves, they will not deliver the step change in behaviour we are seeking.

I believe that employers have a crucial role to play in helping to ensure that today’s workers plan properly for their retirement. To help build an effective partnership with employers we have established the Employer Task Force on Pensions, chaired by Sir Peter Davis. The Task Force will develop case studies and guidance on pensions best practice. It will report to the Secretary of State towards the end of 2004.

Earlier this year the CBI sponsored a survey of pensions decision making among more than 230 business leaders. One of the key findings in this study was that too many employees remain ignorant or unsure about the benefits on offer and are failing to take advantage of company contributions to pension schemes. This highlights the need for a partnership approach to a range of pensions issues between Government and employers.

In addition, the importance of this partnership working was underlined recently by the CBI when they launched their ‘Raising the bar’ initiative – in which they re-emphasised the importance of employers being able to communicate with their workers on options for retirement.

Evidence shows that people generally trust their employer. I believe that the workplace is key for pension saving and as a route of delivering information. We want to encourage employers who have good pensions schemes to draw their employee’s attention to the benefits on offer. Increasingly employees ask about pension arrangements when they consider reward packages on offer.

There are a number of simple steps that employers can take to ensure that employees understand the benefits on offer – for example, including more pensions information in job adverts and details of employer contribution to the pension scheme on payslips.

In DWP, for example, all our staff now receive wage slips clearly showing the employer pension contribution. And we offer advice sessions to help staff plan ahead. From next year Jobcentre Plus systems will be changed so that the vacancies we advertise on behalf of employers show pension information.

We’re providing practical help for employers. A coalition including representatives of the pensions industry, trades unions and employers’ representatives led by the Association of British Insurers have produced a Pensions Information Pack which gives clear information about what employers can – and cannot – say to their employees about pensions.

In pulling together this pack, the ABI have brought together the knowledge, experience and skills of the participating organisations, as well as their own experience of marketing savings products in the workplace.

We’re going to use the information pack as part of a pilot study we’re carrying out over the next six months and will be evaluating its effectiveness.

We believe that employers who are not contributing to their employees’ pensions – or are doing so at a very low level – or employers who don’t have significant numbers of their workers saving in a pension scheme should provide some other form of help to those employees. We’re asking Parliament for regulation making powers in the Pensions Bill under which we could oblige such employers to offer advice and information to their employees in the workplace.

The pilot study – of which the Pensions Information Pack is part – reviews the effectiveness of different ways of providing information and advice about pensions. The options being tested range from simply providing employees with information a Pensions Information Pack through to one – to – one interviews with a financial advisor. The Inland Revenue have agreed that, if certain basic conditions are met, there will be no tax liability for providing pensions focussed advice.

When the pilot is concluded we shall decide which, if any, of the options to take forward and which employers will be required to provide it.

We also want to explore the viability of automatic enrolment, where employees automatically become members of their employer’s pension scheme unless they opt out.

In addition we, want to test a scheme where employees agree to save more in the future by committing to pay part, or all, of their future salary increases into an employer-sponsored saving plan.

I think it’s appropriate that I end where I started in focusing on how Government and employers can work together. I’ve covered a lot of ground this afternoon, but I hope it has helped you see that we are tackling the issue of pension saving across a wide range of fronts. It should also have shown you that we want to work with you in partnership. Together, I believe that we can make a difference.

I would like to thank you again for inviting me here this afternoon and I’d like to remind you to go and have a word with the people at the combined pension forecast stand to find out how you can join this very worthwhile scheme

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