Pension reform
Minister for Pensions delivered a speech at Mansion House on the 13th July.
There are lots of effects of being middle aged.
One dominates your weekend diary – no more weddings.
This is as close to a wedding speech as you get at pension events.
It’s about us starting something new – the delivery phase of this decade’s pension reforms.
Everyone in the room has been involved, in myriad different ways, in the long process that brings us to this point…
…and importantly, there are a lot of thank yous involved.
The task
Today those thank yous are from me…
…but I think in the middle of this century they will be from a much more important source…
…pensioners, enjoying comfortable retirements…
…having saved with many of the organisations in this room, in a system regulated and overseen by the rest of today’s wedding guests.
That is the end point we need to keep in mind.
The task confronting us is clear – decent retirements for today’s private sector workers…
…levelling up the pensions they enjoy… closing the gap with yesterday’s private sector workers and today’s public sector employees.
There are reasons those gaps have grown – some reasons that will always be with us, most importantly the greater ability of the state to bear risk relative to individual employers.
But today’s gaps go far beyond the unavoidable and closing them is the task in hand.
We need to celebrate the progress of the 2010s in getting people saving… but be tough on ourselves about the role of the 2020s: complete the job to build not just savings pots but a pensions system.
A system that delivers adequate pensions for savers and underpins the prosperity of the economy as a whole.
The stakes are high and we must build this system in the face of change and of challenges, not least the reality that we are an ageing society and projections that on current trends those retiring in 2050 will have lower private pension incomes than those retiring today.
Change
The importance of that task is why, despite disgraceful stereotypes of pensions being boring, a huge amount of change in our pension landscape is underway.
That volume of change is reinforced by new questions that need answering – driven by other major shifts - not least many Defined Benefit schemes moving into surplus.
This is all why pension reform is such a central feature of this government’s agenda.
And my first thank you is to everyone that played a role in delivering the Pension Schemes Act.
It contains major planks of the reform journey…
…driving a landscape of bigger and better pension schemes, focused on driving up the returns on workers savings, and able to invest in a wider range of assets…
…tackling the proliferation of small pension pots, and introducing default pensions, so savers aren’t left facing hugely complex financial decisions to turn their pension pot into a secure retirement income.
The Act also helps adjust to that shift of defined benefit pensions as a whole, even if sadly not every pension scheme, into surplus…
…supporting options for trustees, with the Act enabling the safe sharing of surpluses, a permanent Superfunds regime and a zero Pension Protection Fund levy.
Roadmap
Now the time has come to stop talking in parliament and act in the real world. The delivery phase is very much here.
There are days when the scale, complexity and interconnectedness of reforms dents my optimism.
But those days are rare for two reasons.
First, the policy progress already made – not least rescuing workplace pension saving from their near extinction.
Second, and most importantly, because of a huge advantage we have in delivering this change: the increasingly shared sense across policy makers and industry of where we need to get to.
In complex ecosystems – and pensions is definitely one – a shared understanding of the destination is crucial.
It is what means we can all pull in the same direction across thousands of individual decisions.
That is why I have placed so much emphasis in government on spelling out to those of you outside it how we see the myriad changes now underway fitting together.
This is what this updated roadmap aims to do, spelling out the phasing of reforms.
I know some will be impatient for swifter progress on specific issues.
And encourage those people to speak to others, who are raise with me the real challenges of how many things are to be done in quick succession.
In drawing up the roadmap, we have balanced the need for change with the reality that all institutions face capacity constraints in implementing change.
And yes, that includes government.
Delivery is already underway.
In June, new rules on PPF and FAS compensation where people have a terminal illness kicked in.
But most of the change lies ahead of us, so the updated roadmap is allows everyone to see the next phase of reform evolving.
Our goal is to provide the certainty people have asked for, while taking a pragmatic approach, reflecting on valuable engagement right across the industry.
For example we have updated delivery plans for the new Value for Money regime so that the first year of assessments do not come with regulatory consequences.
And I want to ensure the timeline for Guided Retirements works alongside legislation to enable Retirement-CDC.
I hope many of you will see the feedback you have given us reflected in this roadmap.
Next steps
There is of course more to come.
Our changing pensions landscape, not least the prospect of such significant pension schemes in future, requires us to strengthen trusteeship and governance.
This summer has also seen the Pensions Commission publish their interim report, setting out the problem statement for the next phase of reform: too many people are not saving enough for later life and plenty not saving at all with virtually no pension saving being done by the wholly self-employed.
I look forward to receiving their final report early next year and we will swiftly turn their recommendations into action.
As part of the Pensions Commission’s consideration of the long-term future of our pension system, I have also asked them to use their final report to feed into the Secretary of State’s State Pension age Review – adding to the input from Dr Suzy Morrissey and the Government Actuary.
Conclusion
This roadmap recognises both the imperative for change and the reality of what it takes to bring these reforms to life.
It charts the course to a pensions system fit for the 21st century, with pension savers at its heart.
We all know there is much to be done, but holding us to the course laid out in this roadmap is something even more important: the scale of the prize for doing it.
Marrying the design of our pensions system to the desires of millions of today’s workers for a comfortable retirement.
That is a marriage well worth celebrating and I am very grateful for everything everyone in this room is doing to make it happen.
Thank you very much.