19 November 2008

Rt Hon Rosie Winterton MP

Minister of State for Pensions and the Ageing Society

Professional Pensions Show: ‘Pensions – the way ahead’

Wednesday, 19th November 2008

[Check against delivery]

Introduction

Good morning everyone, I am delighted to be here, with so many experts from across the pensions industry.

In discussing, the way ahead, I am sure we share some clear objectives for the future – to secure a confident and stable pensions sector.

I hope everyone in this room would sign up to that.

Together we must ensure both the pensions industry and the consumer are protected in the years to come, particularly faced with a challenging economic reality…

…But encouraged by a collective message from the Government and industry to deepen and sustain confidence in pension savings.

The important point here is to have consistency with that message.

Protection, confidence, security, this must be at the heart of what we do.

We do all know the economic climate is extremely difficult. These are exceptional times.

Some pension providers and scheme sponsors are under strain, and in turn people are concerned, they’re worried about their savings, and about their pensions and investments. 

So we must listen to that concern, and do what we can to help. 

We must take joint steps to reassure scheme members, and we need to think carefully about how we communicate with the consumer.

The time is right to examine our messages - from the industry, and the Government, but as I’ve said working in partnership.

It is interesting that until recently marketing encouraging borrowing has outstripped marketing encouraging saving by three to one.

And so we must enable scheme members to understand and feel reassured about their pensions:

• About how their pension works
• About what has happened to it recently
• And what options are available to people

I will be meeting representatives from across the pensions network - consumer groups, employer groups, industry representatives and others - to  consider how together we can best reach out to people, to talk to them in a sensible and helpful way about their pension and about their pension saving…

…Accepting that people are not saving enough.

And those who are saving at the moment are considering their options.

We need to be united in our message that pension saving is for the long-term and one of the best ways of providing for retirement.

We need to do everything we can to support our pensions industry.

We need to avoid additional cost pressures on firms, without lessening protection.

So we need to redouble our efforts to support business, whilst carefully protecting member benefits.

It is absolutely vital that we continue to ensure that the right regulatory regime is in place to give people confidence in the pension system but without being overburdening to industry.

There is a balance to be struck here and we have endeavoured to strike it.

First, through our rolling deregulatory review, which has led to measures in the Pensions Bill to reduce burdens on employers - for example with a reduction in the revaluation cap from 5% to 2.5% for future accruals.

Crucially, this reduction could potentially save employers around £250million a year on average in the long term.

Secondly, we want to help occupational pension schemes with restrictive rules take advantage of relaxations in the revaluation requirements.

So we will therefore introduce a statutory override to enable overly restrictive scheme rules to be amended where trustees agree.

This override will apply both to the revaluation changes and also to the similar change we made to the indexation cap in the 2004 Act.

Thirdly, we have frozen the current rates for the administration levies that fund the running costs of the Regulator and the PPF, along with the Pensions Ombudsman and the Pensions Advisory Service.

Fourthly, we have brought forward amendments to the Pensions Bill on the issue of qualifying earnings.

We will enable employers who are confident their workers are on course to receive the new minimum level of pension saving, to certify that their arrangements meet the quality standard.

This will reduce the need for changes to the way calculations are made. 

And it will provide flexibility for employers and their schemes, while ensuring that all members of employer-sponsored schemes regularly receive pension contributions….

…At least in line with the new minimum level of pension saving.

I know that flexibility is essential in these tough times.

I want to thank everyone here for the role many of you have played in this extensive consultation.

And finally, last week, we began a 4 week informal consultation on the section 75 Employer Debt provisions of the 1994 Pensions Act.

Now let me be clear, this is not about weakening protection for anyone, but about listening to concerns, and consulting on the options.

But all the while with the clear principle that we are not undermining the employer covenant and we are still protecting employees.

The efforts we are making have been reinforced by the Pensions Regulator, who has also taken steps to provide support to industry.

The Regulator’s recent statement provided, I hope, helpful reassurance for trustees and employers on how to act in current conditions, to ensure that their recovery plans are affordable and effective.

So these moves… 

• the deregulatory measures in the Bill
• freezing the levy
• qualifying earnings
• our informal consultation on section 75
• and the Regulator’s guidance on recovery plans…

All reinforce our commitment to supporting pensions providers and scheme sponsors at this time.

The wider repercussions of the global downturn show that we need now more than ever to work together to protect both industry and the needs of scheme members.

We need to listen carefully to all stakeholders and take the right decisions for pensions in the UK at this time.

Pension Reform to 2012

And everyone here knows, there’s a big change on the horizon.

Our pensions reforms have been driven by a binding consensus for change.

One where groups like the CBI, ABI, NAPF and the TUC, Which?, Help the Aged and Age Concern have supported the same measures.

Recognising that increasing longevity is a good thing.  And so laying the foundations to help meet the needs of a changed society.

The Pensions Bill will we hope receive Royal Assent this month.

So now is the time to focus on turning the reforms into reality.

And focus on preparing for 2012. 

The task is huge.

This Bill will be a major step in realising a long term solution to under saving in the UK.

The provisions will simplify pensions saving and enable individuals to take responsibility for their own retirement.

And let us not forget the number of people likely to be affected by the changes - we estimate that about 7 million people are not saving enough to deliver the pension income they are likely to want - or expect - in retirement.

Automatic enrolment and personal accounts have the potential to provide for between 6 and 9 million people newly participating or saving more in workplace pensions, therefore providing them with a more comfortable retirement.

Our reforms enable all eligible workers to be automatically enrolled into a qualifying workplace pension - helping to overcome inertia and barriers to saving. 

For the first time, employers will be required to contribute to workers’ pensions, providing individuals with a clear incentive to save and helping those on lower incomes to build up their pension pot.

And the simple, low-cost personal accounts will give those currently without access to a good quality workplace pension scheme the opportunity to save - particularly low to moderate earners.

This is a change of great magnitude.

Personal accounts will complement, not replace existing employer provision.

Which is why there will be a ban on transfers between existing pension schemes and personal accounts, as well as the annual contribution limit of £3,600 that we have imposed on personal accounts.

These changes represent a great opportunity for the industry.

These workplace pension reforms are based on a partnership and a shared vision – with industry, with employers, with citizens and our plans have received cross party support.

We are aiming to transform the UK’s saving culture, with pension contributions estimated to increase by around £10billion each year by 2015.

Conclusion

As I said at the start, during these times it is vital we work together to increase confidence in pensions.
It is vital we work together to provide people with a secure and fair retirement.

And it is vital we work together to meet the pensions challenge both in this current economic situation, and in the future.

That’s the best way ahead. Thank you.