9 October 2008

Rt Hon James Purnell MP

Secretary of State for Work and Pensions

National Association of Pension Funds (NAPF)

Scottish Exhibition and Conference Centre

Thursday 9 October 2008

[Check against delivery]

16 years ago today, the Peekskill meteorite burned across a clear blue sky on the Eastern Seaboard of the U.S. Thousands watched the shooting star flash past Pittsburgh - most observers noticed that it had a greenish tinge, in case you are wondering what a 13kg lump of rock from outer space looks like next time one flies past.

The meteorite crashed to earth in the driveway of the Knapp family, in Peekshill New York. Sadly for them they had parked their Chevrolet Malibu out on the tarmac the night before. The meteorite survived, the car did not.

Things can change pretty suddenly. One moment a new car. The next, an insurance claim that no-one is ever going to believe.

I am pleased to be able to talk to you again at such a significant event in the Pensions calendar, albeit at a time when our economy is undergoing changes almost as fast and almost as unpredictable as the comet strike experienced by the Knapps.

The last time I stood in front of your annual conference, I was in a different job. And If I may I would like to take this opportunity to welcome Rosie in to her new post as Pensions Minister. In her first public engagement in her new role, it gives me great pleasure to welcome her to the Department- I am sure that she will continue the fine work of her most recent predecessor Mike O’Brien. Working with you, and the other key stakeholders to move forward with our pensions reforms at this critical time for the pensions industry.

And the current economic situation does make this a critical time.

The credit crunch has given rise to unprecedented economic conditions. A financial crisis that is affecting every country in the world. In a highly leveraged, interconnected and complex global financial system, shocks like these are profoundly felt and quickly transmitted across countries.

The Government is taking action to deal with these challenges.

The immediate priority is financial stability and we have acted in the right way to tackle the challenges facing financial institutions, tackling directly the problems of liquidity in the banking system, by making in excess of £100 billion available to the Special Liquidity Scheme, with the Bank of England keeping it open to banks until the end of January.

Of course, many institutions and many industries around the world are facing up to the implications of these uncertain times. But the challenges will also be an issue for man and woman in the country.

These are not just problems that are of concern for government or for NAPF or any other particular group, these issues affect us all. We all share a common interest tackling their impacts, so we must come together in a common purpose in confronting them. 

It has been said that when a politician tells you that everything is under control, it is time to run to the hills. But I want to talk to you today about why we do not need knee-jerk responses, or panic measures to protect people on the high street from the shock of the market on pensions. And I want to emphasise that we cannot let ourselves be distracted from the long term picture.

It is important to also step back for a second from the current crisis, to ensure that we keep an eye on the challenges that we know will not be changed by movements on the stock market. The fundamental facts that we live in an aging society, a country with more pensioners than children, a country where still not enough people are saving for their retirement

To a great extent we have already taken significant steps to improve confidence in private pension saving.

We introduced the Pension Protection Fund to ensure that there is a safety net for those whose defined benefit pensions scheme fails, a fund that already protects nearly 11 million members.

The Financial Assistance Scheme is bringing justice to the people who lost their defined benefit occupational schemes before the PPF existed.

And we have introduced the Pensions Regulator to maintain a watchful eye on the world of pensions and deal with the greatest risks. Its principal aim is to prevent problems from developing, by providing support and advice to trustees, employers and others to address potential risks. In this way it can give greater protection for members and the Pension Protection Fund.

A determination to maintain this level of security for members was behind our recent consultation on introducing changes to allow the Regulator to respond to an ever evolving pensions market.

We welcome the growth of the buyout market. It presents new, innovative ways for sponsors to take the risk out of their pension schemes and I value the creativity that allows schemes to respond nimbly to emerging challenges. But proportionate regulation is entirely appropriate to ensure that the security of members’ benefits and the Pension Protection Fund are protected.

The Government has listened carefully to concerns from the NAPF and other stakeholders that these changes should be effected in primary legislation, and give greater clarity to employers, pension scheme trustees and other parties, and we expect to publish our response shortly.

These measures have put in place a safety net. A bedrock on which people can rely for a long term confidence in the pensions industry. But they will not be enough in the short term to allay people’s understandable concerns.

Despite the NAPF’s survey which demonstrated confidence of consumers in workplace pensions is increasing, despite the statistic that 89% of scheme member say that they will make no change or will increase their contributions in the year to come. Events of the last few days may well have shifted the goal posts.

Financial adviser Hargreaves Lansdown this week reported that Personal pension funds have fallen by almost a fifth over the last year, following losses in world stock markets There is the suggestion that in the last month alone, retirement savings have lost more than 10% of their value as investors sell their shares to avoid the worst effects of the credit crunch.

The current situation is uncertain, but the pensions industry is better placed than most to cope. History has shown that over the long term, markets do recover. And we cannot let current events divert us from tackling fundamental problems we face, issues that resonate across society.

The fact remains that pensions are the best way of saving for retirement

You know better than most that pensions are a long term game.To quote Joanne herself, “there still remains a hard-core group of employees where more needs to be done on rebuilding confidence, but there lies an opportunity. Employers, the pensions sector and Government need to keep promoting the virtues of the workplace pension.”

I agree. We must continue our efforts to address the fundamental underlying problem - people are still not saving enough to provide adequately for their retirement. And we all will have to work together to ensure that this changes.

We are nearing the completion of another stage in that journey as this week the latest Pensions Bill started its report stage in the Lords. The measures in the Bill represent radical reforms, cementing the remaining part of Turner’s blueprint to revitalise pensions saving.

I want to put on record once more my gratitude for the vital role that the NAPF has played in building the consensus that has been such a distinctive feature of the reforms from back when I was the Minister with daily responsibility for them.

The changes will allow between 6 and 9 million people to participate for the first time, or save more in workplace pensions. The overall pension contributions in this country are estimated to increase by up to £10bn by 2015.

I would also like to express my gratitude to Paul Myners for all the work he has done with PADA. I am pleased to be able to announce today that in order to continue his good work we have appointed Jeannie Drake as interim chair to the Personal Accounts Delivery Authority.

I understand the concerns that have been raised that the reforms will result in a ‘levelling down’ of pension provision. But we have been clear, and I want to re-iterate today, that personal accounts are there to complement, rather than replace existing employer provision.

This is why there will be a ban on transfers between existing pensions schemes and personal accounts, as well as the annual limit that we have imposed on contributions to the personal accounts.
 
Indeed these changes represent a great opportunity for the industry, with around a million workers who were already saving having their employer contributions increased to at least 3%.

And where employers already offer good quality schemes, we want these to continue. For that reason we want to ensure that the qualification test is as straightforward as possible.
This is why we are proposing to move towards an annual equivalence assessment, so that a scheme may qualify regardless of the definition of earnings used, provided that the cash value of contributions paid into the scheme is equal to or better than the value of 8% of qualifying earnings.

There will be no obligation on employers to use a matching definition of earnings. And we will make explicit our intention to allow the assessment of contributions over the course of the whole year. Something that will enable employers and their schemes to smooth the flow of contributions into workplace pension saving.

In settling the policy for all our reforms, we have constantly borne in mind the need to maintain a sensible balance between the needs of individuals, of employers and the schemes, striving at all times to avoid unnecessary cost or burdens on any organisation or group. By moving to an annual assessment, we have aimed to strike that balance again.

We recognise that there are employers and schemes out there who wish us to go further in changing the test and we’re considering if there is anything more that could be done without disrupting the balance that we have worked hard to strike.

The pensions bill is in its final stages – but we are not near end of the journey. Instead it marks a new beginning as we turn towards making the Pension Commission’s vision a reality – a reality in which pension saving was the default, not the exception; a reality where employees receive matching contributions on their savings from employers and the Government [doubling their lifetime’s savings capacity]; a reality where all employees can get access to workplace pension saving.

No one would disagree that these outcomes are desirable, but they are more than that, they are a fundamental part of living in a society where people have the opportunity to enjoy security in retirement. We have built a remarkable consensus so far and the support of NAPF and others will continue to be just as important in turning these objectives into reality, to confront the fundamental problems we face – to get more people saving.

But similarly in the pensions market in order to ensure that people have the confidence to do just that we need to maintain an effective regulation regime. Effective and proportionate regulation and only where it is needed. Something that I am sure everyone today would agree with.

But I am certain that the work that we have shared together over the last few years has put us in a better place to deal with the impact of this crisis on the pensions market. Of course the fluctuations in financial markets will affect the value of people’s assets in the short term. This is a real concern for people.

But our priority must still be focused on the long term implications of the work that you do. To ensure that the pensions market, and the people that rely upon it, are secure for years to come.

Thank you very much.