Gisela Stuart MPWorking hard for Bartley Green, Edgbaston, Harborne and Quinton

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Gisela’s Guide to the Pensions Bill

11th January 2008

Key points of the Bill

• The Pensions Bill implements a radical new pensions settlement – the most momentous change in pensions since the introduction of the state pension a century ago.

• Around 7 million people are currently not saving enough for retirement. Only half of those aged over 35 are saving for a pension, and only a sixth of 20-24 year olds.

• The problem of under-saving is particularly serious for those on moderate to low earners, with only 40 per cent of those earning £5,000 to £35,000 a year saving towards a pension compared to three-quarters of those earning over £35,000.

• The Pensions Bill will tackle the problem of under-saving by ensuring that all eligible workers are automatically enrolled into a qualifying workplace pension, with a right to opt out if they choose.

• For the first time employers will be required to make a minimum contribution to workers pensions. More than 1 million workers who are already saving will have their employer contributions increased to at least 3 per cent.

• As a result of these changes, between six and nine million people will be newly saving in a workplace pension or saving more as a result, transforming the savings culture in the UK.

• Overall annual pension contributions will go up to around £10 billion by 2015.

• For those without access to a good quality workplace pension scheme, the Bill will establish a new low-cost system of personal accounts, ensuring that everyone has access to a workplace pension. This will particularly benefit low to moderate earners.

• The Bill will establish a proper compliance and enforcement regime, ensuring a light touch for good employers while cracking down on the bad who fail to comply.

• The Bill will support those employers providing good quality defined benefit schemes by reducing the burden of regulation on employers, while maintaining essential protection for workers’ benefits.

Why do we need this Pensions Bill?

• The Pensions Commission, under the chairmanship of Lord Turner, graphically illustrated the scale of the long-term challenge on pensions and the need to tackle the problem of under-saving.

• The Pensions Commission established a broad consensus encompassing all major stakeholders as the basis for the long-term reform of pensions. Labour is committed to working with all stakeholders to implement the recommendations of the Pensions Commission.

• Through the Pensions Act 2007, we have already implemented the first half of the new pensions settlement recommended by the Commission. The key reforms introduced by the Act were:

• Halting the spread of means-testing by restoring the link between the state pension and earnings from 2012, subject to affordability, or by the end of the next Parliament at the latest.

• Ensuring the state pension system takes account of rising life expectancy by raising the state retirement age for men and women to 68 by 2046.

• Reducing the number of years of National Insurance Contributions required to qualify for a full basic state pension to 30. This will ensure for the first time that as many women as men qualify for a full state pension – up from a third today to 90 per cent by 2025.

• Making the state pension system easier to understand by providing for a simpler, flat-rate State Second Pension.

• The Pensions Bill implements the second half of the new pensions settlement – reforming private pensions saving to ensure that all qualifying workers are enrolled automatically into a workplace pension, and providing for a compulsory minimum employer contribution.

What else is the Government doing for pensioners?

• Our Labour government has reduced pensioner poverty by over a third since 1997.

• In addition to the introduction of the Pension Credit, we have introduced the Winter Fuel Allowance, free eye checks, free bus passes, and the free TV licence (for the over 75s).

• As a result of the measures we have introduced, pensioners are now less likely to be in poverty than any other member of society.

• Since 1995, pensioner incomes have risen twice as fast as those of working age.

• We are spending £11 billion more on pensioners in real terms than under the Tories. Half of this spending is targeted at the poorest third of pensioners.

• As a result, 2 million pensioners have been lifted out of absolute poverty, and 1 million have been lifted out of relative poverty.

• Pensioners are on average £1,500 a year better-off in real terms, while the poorest third are £2,200 a year better off.

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