“The Government is announcing a radical overhaul of pension policy.
Ministers acknowledge that the current system is too complex for people to
understand and has lost legitimacy. Individuals no longer trust financial
providers, feel let down by employers and have lost faith in the state.
“Pensioner poverty has not declined under this Government. We recognise
that it is time to reconsider our strategy. We intend a dramatic
simplification of the state pension system as the necessary bedrock for
individuals to make their own plans for retirement, helped by employers and
private providers of pensions. We recognise this is a significant change in
policy but sometimes Governments have to admit that their current policies
are not working and they must think again.”
Children are allowed to fantasise so why not policy analysts? Of course,
the Government's Pension Green Paper was never likely to be this radical
but there is a palpable sense of disappointment that, having acknowledged
complexity as a key problem, the Green Paper avoids any discussion of state
pension provision and its interaction with private pensions, which is the
main source of that complexity.
The Government's proposals to radically simplify the pension tax regime
will do little to make pensions clearer from the point of view of
individuals. Forecasts of pension income are unlikely to help much either.
For individuals, the main problem is the existence of a basic state pension
backed up by a complex system of means-testing and a separate state second
pension with all the associated rigmarole of contracting out. Sweeping all
this away is the real key to simplification.
Despite the Green Paper's lack of radicalism, behind the scenes there has
been much discussion in Whitehall about the sustainability of current
pension policy. Within No 10 and, indeed, the Department for Work and
Pensions, there has been some appetite to think again about the structure
of state pension provision. The Treasury, however, has been adamant that
current policy is broadly on the right tracks. As is often the case, the
Treasury has won the argument and the DWP has failed to stamp its authority
on a key area for which it has direct responsibility.
The Government could not have failed to notice the impressive consensus
that has arisen over the last year that pension policy is not on the right
tracks. The IPPR's call earlier in 2002 for a dramatic simplification of
the state pension system has been echoed by a wide range of individuals and
organisations, including the National Association of Pension Funds and by
Alan Pickering in his evidence to the House of Commons select committee.
Opposition spokesmen David Willetts for the Conservatives and Steve Webb
for the Liberal Democrats also appear to be part of that gathering
Under what circumstances would the Government look again at more radical
proposals for shaking up pensions?
If it is as unsuccessful in its second term at reducing pensioner
poverty as it was in its first term.
Between 1997 and 2001 the proportion of pensioners living in poverty did
not decline. If there has still not been significant progress by 2005, the
Government's approach to tackling poverty through more generous
means-tested assistance will be seen to have failed in achieving its most
basic objective. One key to this is the take-up of the minimum income
guarantee, which remains low.
If, by 2005, the Government cannot marshal a lot of convincing
evidence that lowto middle-income workers are saving more for their
retirement, the stakeholder element of the Government's strategy will be
seen to have failed.
Stakeholder is already perceived as a bit of a damp squib despite having
placed downward pressure on the costs of having a personal pension.
If the media continue to headline the decline of salary-related
pension schemes, this will perpetuate the notion that we are facing a
Even if the Government can do little about this specific problem, it will
come under renewed pressure to address the wider pension framework.
So, the chances of another review of pension policy in the next few years
are higher than people might think and at some point the Government may
conjure up the courage to put forward radical changes in relation to state
The proposal in the Green Paper to set up an independent pension commission
may have caught some people's eye. Unfortunately, its remit has been set
very narrowly. It will look only at how much is being saved into private
pensions. It will not even be encouraged to look at how to improve
employment rates for older workers despite the Green Paper stating clearly
that saving is only half the equation and that enabling people to work
longer can make a big difference. And, of course, it will not be allowed to
look at state pension provision at all.
The Green Paper represents a significant missed opportunity. After Green
Papers in 1998 and 2002, we can expect another one along by 2006.
Peter Robinson is a senior economist at the IPPR