07 January 2008 – We must act now to avoid the nightmare of a future pensions crisis – Hain

Individuals must take personal responsibility by saving for later life as part of a renewed social contract designed to avoid the nightmare of a pensions crisis in years to come, Secretary of State for Work and Pensions Peter Hain said today.

Speaking ahead of the second reading of the Pensions Bill 2007 - which proposes automatic enrolment from 2012 into good workplace pensions with an employer contribution of at least three percent - Mr Hain said action was vital so that future generations of workers were not left struggling to pay for an ageing population.

He said:

“The Government’s pension reform package is one of the most radical changes in the 100 years since the first state pension was created by the Old Age Pensions Act 1908.

“And radical change is needed. One hundred years ago few people lived long enough to collect a State Pension - on average men only survived to age 49 and women to 53. Today, one in four babies is expected to live to 100.

“People are living longer, are more active and expect to be able to enjoy the type of lifestyle in retirement they had while working.

“Around three quarters of people say they will need more than the State Pension to live on. But actions do not match words – only around four in 10 working age people are saving into a private pension.

“With increasing longevity, if we don’t tackle the challenge of under-saving, by around 2050 we face the nightmare of a pensions crisis with people of working age struggling to pay for an ageing population.

“The state, individuals and employers all share in the responsibility to avert such a crisis - so we must act decisively now to renew the social contract between us.”

Mr Hain said the Pensions Act 2007 put in place the first part of this new settlement - providing a solid foundation for private saving by extending coverage from 2010 and restoring the earnings link to the Basic State Pension in 2012, or by the end of the next Parliament. State Pension age will also increase gradually to 68 by 2046 so that future generations are not left footing the bill for increasing longevity.

The new Bill would build on these reforms by making it easier for people to save through automatic enrolment into a qualifying workplace pension scheme, including the new personal accounts scheme.

Mr Hain said:

“Automatic enrolment will combat the inertia which is such a barrier to saving, while the minimum employer contribution and tax relief will mean individuals’ contributions are matched £1 for £1.

“But it’s crucial that individuals play their part in this renewed social contract. To achieve the type of lifestyle they expect in retirement they must take personal responsibility by participating in a pension.

“For most, the downsides of not saving far outweigh the small risk of saving and later regretting it. These reforms will give millions of people the means to fulfil their aspirations for a better and more secure income in later life.”

The second reading of the Pensions Bill in the House of Commons will take place later today.

Notes to Editors

1. The Pensions Bill 2007 proposes automatic enrolment into a qualifying workplace scheme or personal accounts for all workers, between 22 and State Pension age, earning more £5,035 a year (at 2006/07 rates).  Workers would contribute a minimum of four per cent, employers a minimum of three per cent with around one per cent in tax relief from the Government.
2. The Old Age Pensions Act 1908 created a means-tested state pension of up to five shillings per week for some of the poorest pensioners aged 70 and above.
3. In 1908, on average men survived to 49 for men and women to 53. Average life expectancy is around 92 years for a boy born today and around 95 years for a girl - around one in four babies born today are expected to live to 100.
4. During the last 100 years the proportion of people of working age to pensioners has shrunk considerably. Reform is needed so that the cost of an ageing population is not passed on to future generations of people of working age. At the beginning of the last century there were 10 workers for every pensioner. Today, the ratio is about four to one and by 2050 it will be about two workers to each pensioner.
5. For more information go to www.dwp.gov.uk/policy/pensions-reform/

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