2 July 2008

Rt Hon Mike O'Brien MP

Minister of State for Pensions Reform

Scottish Widows UK Pensions Report

Wednesday, 2 July 2008

[Check against delivery]

 

Scottish Widows – UK Pensions Report

I welcome this, the fourth annual research report from Scottish Widows.

I recognise the valuable contribution Scottish Widows continue to make in research and analysis on retirement saving. It is an important study of the savings habits of the nation.

And despite the lurid headlines there are positive results in the report:

• Saving levels are up, with your survey showing 51% are saving adequately for retirement
• The average savings ratio is up, standing at 8.7%
• The number of women saving has increased by 5% to 46%
• And the number making no provision is down a quarter at 18%

Newspapers may only heed the bad news but I think it is safe to conclude that saving for a pension is not dead.

Indeed your report states “The concept of locking away your savings for the long-term is clearly still popular”

This said, there is certainly much more to do to increase levels of saving.

Despite the good news your report shows that a significant minority are not saving enough. And, more worryingly a sixth of the population are making no provision at all.

This was a problem Adair Turner’s Pensions Commission focused on.

He said that whilst there was no pensions crisis today, radical action was required to reform the pensions landscape and prevent a future crisis.

In short, more people needed to save more.

That is why the Government is taking forward radical reforms to the State Pension and to the private pensions system.

They are the biggest changes to UK pensions in 100 years. Social reforms that that will affect the lives of millions.

From 2010, the State Pension will reward those who care for children or relatives and not just those who work. This will reverse the inequality that has denied many women a full basic State Pension.

Today just 35% of women are entitled to the full Basic State Pension. Our reforms mean that from 2010 this will double to 75% and by 2025, 90% of women will be entitled.

We will also intend to restore the earnings link so that the State Pension will be more generous in the future.

In private pensions the Pensions Bill, currently before the Lords, aims to tackle under-saving and lack of provision.

It will do this by making saving in a workplace pension the default position.

Employees will be auto-enrolled into a pension, so that when you start work, you start saving.

Savings will be matched by a minimum employer contribution and tax relief, giving a real boost to people’s pension pot.

And for those who work for an employer without a good workplace pension scheme, we are creating Personal Accounts. This will be a straightforward money purchase scheme with low charges.

The Personal Accounts scheme will enable millions of people, especially those who work for small employers – the local corner shop, the village pub or the garage round the corner – to have access to a pension scheme.

By 2015, we aim to see up to 9 million more people saving, or saving for the first time, through this set of reforms. And up to an extra £10 billion a year being saving in UK pensions.

These reforms have the potential to herald a massive step change in the savings habits of the nation.

Your report underlines the necessity for these reforms.

While it shows saving has been increasing, we need to take this radical action to make saving in a pension the norm.

And as we move towards implementation in 2012, we need to get the details right.

Strengthening existing provision

So I am encouraged that your report highlights the continued importance of workplace pensions in staff recruitment and retention.

Many employers currently offer much more than the minimum standards that will be introduced in 2012.

I expect our reforms to strengthen that existing good provision.

Where there are existing good schemes, we hope that employers will continue using them to meet the new duties.

We are designing the reforms to encourage that.

And we want to send a signal that the 3 per cent employer contribution is a minimum, and we expect most employers to offer more.

For instance, we have listened carefully to stakeholders and decided that there should not be transfers in and out of the Personal Accounts scheme, and that the scheme has an annual contribution limit.

These measures will help focus the scheme on its target group of low to moderate earners without access to a good scheme.

And our research shows that the majority of employers with pension schemes intend to offer new employees their existing contribution levels or higher.

Pays to save

As your report notes, we must also tackle the issue of savings incentives so that people know: saving in a pension is the best way to provide for your retirement.

The Pensions Commission was clear, people should save more.

And the majority of people will benefit from these reforms.

Employer contributions and tax relief will provide a pound for pound matching contribution for the first time.

For most people, this is an appealing proposition – when questioned, over 9 in 10 people found the idea of an employer contribution attractive.

In contrast, betting your retirement income on benefit provision is unsound – none of us know what will be around in 10 years, let alone 50 years.

But we recognise the need for well-informed discussion and evaluation of savings incentives, and have therefore established a Government-led work programme to consider this issue.

Communications strategy

We must also be able to effectively communicate the benefits of these reforms. So that these social changes will reinvigorate individuals’ attitudes to savings.

We are currently developing a communications strategy that will engage individuals and raise their awareness about pensions.

It will ensure individuals have access to the information they need to make decisions about pensions and saving.

It will contribute to our financial capability and inclusion agendas, so that people understand the benefits of saving. And more people can save with confidence.

Conclusion

I welcome this timely report from Scottish Widows.

It shows that the Pensions Commission set out the right route map and the Government are following the right direction. But it also highlights the necessity for our reforms.

Our shared message must be clear – people should save and save early. So people can have a better retirement.