26 May 2006
We held a webchat today with Pensions Minister James Purnell to talk about the White Paper.
Many thanks to all those who sent in questions - we received several hundred. Sorry if the Minister didn’t get round to answering yours in the time available.
You can find out what was discussed in the transcript below.
Read the transcript
James says: Hello, I am here and looking forward to your questions and we are just working on the first answers.
Kate Flavell: If a low-cost private pension like the NPSS is introduced, surely employers who currently operate good pension schemes will switch to that, so as to have less responsibility for running the scheme. They will feel able to reduce their contribution rate to that mandated by the Government, and the net result will be an overall reduction in savings rather than an increase. The beneficiaries will be the employers.
James replies: We think between 6 and 10 million people will save in the NPSS and that should increase saving. Employers are already typically contributing more than 3% and see it as a key way to attract employees. Outlawing changes to pensions would be unlikely to work and risk companies closing down.
Carl Bendelow: I have worked for nearly 40 years and made pension contributions how ever difficult things have been. I think it is unacceptable that people can opt out of making pension provision - a minimum of 4% is not going to break the bank. Could the government simply make pension provision mandatory, what is the problem.
James replies: We are introducing auto enrolment to increase the number of savers. The Pensions Commission recommended it because they thought there are between 9.6 million and 12 million not saving enough for retirement. Auto enrolment will make it easier for people to save. But we think it should be the individual’s choice whether to continue saving, so they should be able to opt out.
Lucy Read: Why has it taken the Government so long to address the shortfall in pensions, when we are all aware and have been for many years that people are living longer?
James replies: Our first task as a Government was to deal with pensioner poverty. We have lifted 2 million pensioners out of absolute poverty. But we also recognised the need to address the consequences of an ageing society and that’s why we asked the Pensions Commission to look at this issue. They found that there was no immediate crisis for pensions but we needed to put in place a new pensions policy for the long term and that’s what we are seeking to do. We now want to build a consensus around these proposals so they can last.
ffinlo Costain: I’m 34, I’ve worked in a variety of high responsibility/low pay charity and public sector jobs which have included three substantial career changes. My employer now makes a contribution to a pension for me - but I still can’t afford to contribute myself because of the cost of living as a single person.
I expect to work longer than my parents (to 70), but also expect that the state will provide a living pension (for a decent but not luxurious retirement) to reflect my contribution to society over a fifty year working life.
Is this reasonable?
ffinlo Costain
James replies: That’s the goal of our policy - we want to make it easier for you to save for retirement. Linking the basic state pension to earnings should give you a solid platform for your retirement, and at the end of your working life lift you above the means-tested safety net so you keep your private saving.
Mr P Wadsworth: Will you be stopping means testing on Pensions, as it seems double standards to make people save and then stop them from getting a pension as they have saved too much ?
James replies: We have the targeted safety net of Pension Credit so we can help the least well off. That safety net has been very successful in lifting over 2 million pensioners out of poverty, and the Pensions Commission found there was no immediate crisis. But to target policies in this way, we need to have some means testing. Over the long term, we believe our policies will reduce the proportion of people who are means tested to about a third. But it would be wrong to get rid of all targeting - that would mean not having a way of helping poorer pensioners more.
John Hunt: How can the white paper have any credibility in terms of encouraging people to save for their old age when so many have done just that and government has caused their pensions to be stolen from them after a lifetime of contribution on the recomendation of government in the past.
James replies: We recognise the distress of those who have lost their pensions through no fault of their own when their companies go bust. But we do not accept that it is right for the government to under-write people’s private savings, nor that government gave people a guarantee this was the case.
This Government set up the Financial Assistance scheme to help those in the most urgent need. Yesterday, we were able to extend this scheme to people within fifteen years of their retirement age - £2 billion of extra help. We also want to build confidence in pensions moving forward. We have therefore strengthened the regulation of pensions and introduced the Pension Protection Fund - which gives new and added protection to occupational pensions.
Seema Malhotra: How will the reforms impact black and minority ethnic communities - particularly BME women to help ensure adequate income in retirement?
James replies: Hi Seema,
These reforms will help women by increasing the proportion who get a full basic state pension. At the moment, only a third of women retire with a full basic state pension. Our changes will mean that will go up to 70% in 2010, and should reach 90% in 2020 and then full equality with men by 2025.
We are also getting rid of some rules which require carers to have worked a minium number of years. That will particularly help women from BME groups - our research found that would be particularly siginificant for Bangladeshi and Pakistani women.
Marie Peacock: I am a full time mother to four children. I am concerned about my future pension which, as things stand, will not recognise my years at home raising children. After university I worked full time for 8 years and will have stayed home for 14 years in total. Soon I anticipate returning to work part-time. I will probably do part time work for another 10 years (my youngest is just 3yrs old) and anticipate 10 years working full time until I am 65 yrs. This means only 18 years of full time work during my lifetime plus another 10 years part time. It is not enough. But my first commitment is to my family. As I understand it, the regulations will require 30 years working full time to qualify for a full pension. Where does leave mothers like me? Isn’t it about time that the contribution of mothers at home is taken into consideration? Especially nowadays when we save the government money by not requiring costly childcare places.
James replies: We completely agree that the contribution of women should be taken into consideration. Childcare is a vital contribution to society. In fact, your years of childcare should already be being taken into account through something called Home Responsibilities Protection (HRP), which currently reduces the number of years people caring for children need to contribute for a full basic state pension. We are going to build on that by reducing to 30 the total number of years of contributions required. These changes will come in during 2010 - if you contact the Pensions Service, they should be able to give you a pension forecast of your entitlement based on these new changes - www.thepensionservice.gov.uk
Kristian: Is it not sex discrimination for woemn to only have to work 30 years for a full state pension, when men will have to work 44 or more?
James replies: I understand your concern - but we are in fact cutting it to 30 years for both men and women. Men also play an important role caring for children and relatives.
Wendy Fowler: What options are open to the self employed worker
James replies: The self employed will be able to opt in to the new personal accounts. They would then benefit from the lower charges and greater simplicity of this scheme. The Pensions Commission said they thought charges of 0.3% a year would be possible - compared to charges of 1.5% today in stakeholder pensions. That would mean people keeping around 25% more of their pension pot in retirement.
Don Williams: I was hit with a massive heart attack at the age of 45, I have lived on meagre benefits from that time. How do I, and many others who are badly disabled "save" anything. Its hard enough to exist on benefits let alone save.
James replies: I’m sorry you’ve had these health problems.
We’ve introduced Pension Credit to make sure there is a safety net for those who cannot save. In 1997, many pensioners had to live on £69 a week. Thanks to Pension Credit, no one should have to live on less than £114 a week. There are also a range of benefits for people with disabilities who are unable to work, such as Incapacity Benefit and Disability Living Allowance. It sounds like you are receiving these already, but if not you could speak to JobCentre Plus for further information.
If you are on IB, you should also have built up some entitlement to a Basic State Pension. As you may have read, our objective is to ensure the Basic State Pension is more generous in the future. Our objective is to do this in 2012.
Marcus Phokou: Why does the government persist in acting as if it knows better than the experts?
James replies: In fact, this policy has been based on advice from the experts. In 2002, we asked Lord Adair Turner to chair an independent commission to advise us on the future of pensions. They reported in November and he has said that is satisfied with the way we are implementing the report of the Commission. We want to build a consensus around these reforms and have consulted a wide variety of experts in developing the White Paper, as well as thousands of members of the public through our National Pensions Debate.
John Hunt: Thank you for your reply although I totally disagree.
Are you saying that it is acceptable for government to underwrite the pensions of own MPs and those working in the public sector only. If so this is totally unfair as we all pay our taxes. Will the government underwrite future schemes on which it gives advice?
James replies: The Government is not in a position to give financial advice. There is a difference between our role with respect to public sector employees and with respect to workers in the private sector. For public sector workers, govenment is also the employer. We’ve recently reformed those schemes - raising the pension age for new entrants to 65 for example and saving £13 billion in the process. In the teachers’ scheme, for example, members who want to be able to retire at 60 will need to increase their contributions.
james: What will happen to a pension if the pensioner goes to live in Canada?
James replies: British pensioners who move to Canada receive a Basic State Pension, but it is not uprated. We only uprate where there is a legal agreement to do so, or a reciprocal agreement. It would cost £400 million a year to change this at the moment. That policy has existed under many previous governments.
leonard hudson: i am already retired and will be 70 in june . i can see the need to save for a better pension for the future . but with the higher cost of living i.e. council tax, fuel for heating and electric charges . what can be done to help pensioners now ?.
James replies: We recognise the importance of helping today’s pensioners. This year alone we’re spending £10.5 billion more than if we’d left policies unchanged since we came to power. That’s three times more than it would have cost to restore the earnings link. Yesterday, we announced our intention to uprate Pension Credit in line with earnings, to continue to tackle pensioner poverty. We look at the issue of today’s pensioners year by year - for example, we have brought in free TV licences, winter fuel payments and now free bus travel. But yesterday’s White Paper was aimed at addressing the long term challenges of pensions policy and how we can help today’s workers save more for retirement.
Fiona Fisher: I am filled with gloom because of what I "earn" now, approximately 30p an hour, and what pension I will get when I "retire". I am a 21st century piece of chattel who has quietly saved the UK over a million pounds of care costs in looking after my profoundly disabled son to date. Unpaid / family carers are already invisible and will be forgotten, so the whole pension debate is a joke.
James replies: We really do value what carers do. Helping carers was one of the key goals of yesterday’s reforms. If you are already caring for more than 35 hours a week, you may well already be receiving credits towards your Basic State Pension. As a result of yesterday’s changes, we are also going to credit people who care for more than 20 hours a week for people receiving disability benefits. I hope this will be of help to you and you may want to contact JobCentre Plus for more advice - www.jobcentreplus.gov.uk.
Trevor Lake: It is said that the Prime Minister and the Chancellor have agreed that the State Pension will be linked to average earnings. Will this apply both pre and post-retirement i.e. will the State Pension maintain its current real value until I retire and then until I die?
If so, how is this affordable?
Thank you.
James replies: Our objective is to link the Basic State Pension to earnings from 2012 - and that would then apply to everyone, both retired and working. The Basic State Pensino would more than maintain its "current real value" - real value is normally taken to mean being linked to inflation. The Basic State Pension being linked to earnings should mean it goes up faster than inflation. We’ve set out in the White Paper how this is affordable - partly by some specific savings but also because people will start to work longer, as we all live longer.
pat egan: pensions cannot be looked at in isolation, young people are coming out of university with student loan debts if they marry or take up residence with a partner soon after they have to meet mortgage payments in a very high housing market leaving very little money left over if any, for savings this should be the starting point is for government policy on pensions
James replies: That is our starting point - we want to make it easier for people to start saving. The earlier people save, the more they will have in retirement. That’s why we want to automatically enrol people into these new personal accounts when they start working. However, we recognise that some people will not want to be saving at some stages of their life, and will therefore allow them to opt out. But there will be a strong incentive to stay in the scheme because their contribution will be matched by money from their employer and the State - these contributions, which will be compulsory, will double the employee’s contribution.
claire: My father did everything you asked and is now retiring in poverty after his guaranteed company pension scheme closed - I’m only 22 how do I know that what you decide will not be changed by the whim of another government and I will lose my pension as well?
James replies: I really do sympathise with the situation your father is in. However, company pension schemes are in the end the responsiblity of those companies. We have set up the Financial Assistance Scheme and the Pension Protection Fund to give greater confidence in the pensions system. You are right to say that it is important that pensions policy should not be changed at the whim of a change of government. That’s why we are trying to build a consensus with other political parties, so that you can be saving with confidence that the system will be stable.
andy wotherspoon: If it is the role of government to encourge the population to act in the best way to solve global problems would you agree that having incentives to reward pension savers is more constructive than policies which reward non-savers?
James replies: Yes, we do agree - the goal of the White Paper is to encourage people to save for their retirement. It does this by creating a solid platform from more generous state pensions, and then introducing a new personal accounts scheme to make saving easier. We believe that median earners who save should be £50 a week better off in the long term than if we hadn’t reformed the system, although that is obviously always subject to the performance of the stock market.
George Gibbons: I am now 50 years old - my wife is 58 years old - how shall this affect us, that is - shall my retirement age be raised and if yes to what? My wife is only 2 years away from ‘retirement’ while we believe shall shall not get a State Pension until I retire - so what happens here?
James replies: You won’t be affected by the changes in the State Retirement Age - they are due to start in 2024, so no one over 47 will be affected. Your wife should at the very least get Pension Credit from 60, if she has no entitlement to a basic state pension and your combined income is less than £174.05 (06/07 rates).
Rosalind Tosh:
Supposedly, the proposal to link the basic State Pension to earnings rather than to prices could result in the pension being worth twice as much by 2050. Please explain.
James replies: Sure - if we had not restored the earnings link, the value of the Basic State Pension would have fallen. The restoration of the link means that by 2050, the Basic State Pension will be worth approximately twice as much as it would have been if it had remained linked to prices.
Clive Collins: Why does the Givernment think that employees will contribute to the NPSS, when many don’t to their existing company pension schemes because they say they cannot afford it?
James replies: For two reasons: first, their contributions will be matched pound for pound. The idea is that their contribution would be 4% and the employer and government would put in another 4%. So there’s a "double your money" incentive to stay in. The other reason is research from schemes that already have automatic enrolment. In those schemes, more people stay in the scheme, than where people have to make an active decision to opt in. In our National Pensions Day consultation, 72% of people supported a savings scheme with automatic enrolment and the option to opt out.
James says: Thanks for all your questions - I hope I’ve answered at least some of them! It’s been really helpful and we’ll make sure we feed your views in as we develop the policy from the White Paper.
Moderator says: That’s the end of our webchat for today. Thanks for taking part. We answered as many questions as we could, sorry if we didn’t get round to yours.
delicious
digg
facebook
