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A bold new pensions settlement designed to enable people to plan ahead and save more for their retirement was set o...
A bold new pensions settlement designed to enable people to plan ahead and save more for their retirement was set out today in the government's white paper on pensions reform.

The proposals are for the future and will provide the infrastructure for the system for the next forty years.

Speaking in parliament today, John Hutton, secretary of state for work and pensions said:

'Today's white paper seeks to entrench a new pensions savings culture where future generations can take increasing personal responsibility for building their retirement savings.

'The reforms represent a comprehensive, integrated package of reform.

I believe it can lay the foundation for a new and lasting consensus on a long-term resolution of the pensions challenge we face as a country.'

Key elements of the white paper include:

* New low cost savings scheme in which employees will be automatically enrolled. Employers will make matching contributions while the employee chooses to remain in the scheme. This will create a new savings culture in Britain; up to 10 million people will be saving in these personal accounts and most of the money paid in will be new pension saving. By retirement, their pension funds could be worth up to around 25 per cent more because of lower charges;

* These measures to make it easier to save will be supported by a higher fairer state pension re-linked to earnings. This will mean that by around 2050 anyone who has been in employment or caring throughout their working life will get around£135 a week or more in retirement in state pension. This is over£20 a week above the guaranteed income level.

* Measures to help smooth the introduction of this reform for business. Employer contributions will be phased in over at least 3 years and the contribution rate will be fixed in primary legislation.

In order to minimise the burden on the smallest businesses, we will consult on additional transitional support.

* We will ensure the new settlement is sustainable over coming decades by gradually raising the state pension age in line with life expectancy. The state pension age will rise to 66 over two years between 2024 and 2026 and then from 66 to 67 between 2034 and 2036 and then to 68 in 2044 to 2046.

* The package of reforms continues to protect the poorest pensioners from poverty. It will ensure that the least well off continue to share in the growing wealth of society by increasing the guarantee credit in line with earnings in the years ahead.

* Unfairness in system - which affects women in particular will be addressed by modernising the contributory principle for the basic state pension and the state second pension so it rewards social contributions equally with paid contributions. This will be done by:

cutting to 30 the number of qualifying years needed to receive a full basic state pension and improving the system of credits. This will improve the pension provision for those who care for children as well as severely disabled people. In 2010, 70 per cent of women reaching State Pension age will be entitled to a full basic State Pension, compared to 30 per cent now.

* Abolishing the contracting out for defined contribution schemes will reduce administrative complexity and remove a key source of confusion for individuals.

Alongside this today, the Government also announced the outcome of the review of the Financial Assistance Scheme (FAS).

James Purnell, minister for pensions reform said:

'It was this Government which brought forward the Financial Assistance Scheme as we recognised the real hardship many people faced in retirement through no fault of their own.

'Having reviewed the scheme we are pleased to increase the cover from

3 to 15 years. We are now able to extend assistance to an additional 22-30,000 people on top of those helped by the current scheme. This represents a substantial additional investment into the scheme, taking the total cash funding of the FAS from£400 million to over£2 billion.'

The proposals for reforms set out in the White Paper are informed by an extensive programme of government consultation with key stakeholders and the National Pensions Debate. The Government will now begin the formal consultation process, continuing to engage with stakeholders and members of the public.

We are confident that it meets the five key tests we have set for reform - of promoting personal responsibility, affordability, simplicity, sustainability and fairness.


The Pensions Commissioners today welcomed the government's White Paper on pensions, and said that it represented a major opportunity to build consensus around a new pensions settlement which could last.

Adair Turner, former chairman of the Commission, said 'The White Paper commits British pension policy to the three key policies which were at the centre of our recommendations: first, state pension provision which increases over time in line with the nation's prosperity, limiting the extent of means-testing, and made affordable by a steady rise in the state pension age as people live longer.

Second, a better deal for women. Third, automatic enrolment into a new system of low cost personal pension savings accounts with provision for an employer contribution. We hope that this overall architecture can command support from all parties, whatever the debates about details.'

Commenting on key points in the White Paper, the commissioners said:

* 'We strongly welcome the commitment to the principle that both the Guarantee Credit and the Basic State Pension should rise over the long-term in line with average earnings. While we recommended that the BSP's indexation to earnings should start in 2010, the delay to 2012 represents an acceptable compromise given affordability concerns. But a longer delay could undermine the balance of the overall policy package.'

* 'The package of improvements to the contributory system (which include a reduction to 30 in the number of years of contribution required to secure a full Basic Pension plus improved treatment of carers) will make a big difference to many people, in particular women. While the Commission recommended a residency basis for the build up of pension rights, the White Paper proposals will deliver significant improvements.'

* 'The White Paper rightly sets out the principle that the state pension age should rise over time to keep roughly stable the proportion of adult life spent receiving a state pension. The detailed implementation of this principle should reflect future trends in life expectancy. As the White Paper acknowledges, detailed policies (e.g. on the age at which the Guarantee Credit becomes

available) may need to be adjusted to protect the position of lower socio-economic groups. And beyond the initial increase in SPA to 66 we believe that flexibility should be preserved to adjust the timing of subsequent increases in the light of latest life expectancy forecasts which may change over time. The government proposes periodic reviews of these issues. The Commissioners believes that the timing of these reviews should ideally be preset in advance (e.g.

every 4 years).'

* 'We welcome the government's commitment to the three key features of the Commission's proposed new private pension saving system:

automatic enrolment, organisational arrangements which ensure low cost provision, and a compulsory matching employer contribution set at a minimum 3%. A package of measures to mitigate the initial cost impact on small businesses will be an important implementation detail. And the Commissioners continue to believe, as the White Paper tentatively concludes, that a single national scheme, rather than a multi-provider model, will deliver lowest cost, and thus highest possible pensions to savers.


* The Pensions Bill 'Security in retirement: towards a new pensions system' is published today and available at

* Further information is available at:

* The summary version of the WP is available free of charge from the Pensions Information Orderline - call 0845 7 31 32 33 to order a copy (textphone number is 0845 604 0210). Also you can download full version, summary and RIA from

1. The Pensions Commission was wound up following the publication of its final report 'Implementing an integrated package of pension reforms' on 4 April 2006. This report is available on the Pensions Commission's website

2. The Pensions Commission's First Report 'Pensions: Challenges and Choices' and Second Report, 'A New Pensions Settlement for the 21st Century,'' are also available on line or to order from The Stationary Office.

3. The independent Pensions Commission was established as a temporary body in December 2002 following the Government's pensions Green Paper. The Commission's terms of reference are available on the website.

4. Adair Turner was the Chairman of the Commission and is Vice Chairman of Merrill Lynch Holdings Ltd and a director of United Business Media plc. He was appointed as a cross-bench peer in the House of Lords in September 2005.

5. The other commissioners were Jeannie Drake, who is the Deputy General Secretary for the Communications Workers Union, recent President of the Trades Union Congress and an Equal Opportunities Commissioner, and Professor John Hills, who is a Professor of Social Policy and the Director of the Centre for Analysis for Social Exclusion at the London School of Economics.

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