Briefing Pensions, Pensioner Poverty and the Pensions Commission Final Report Lord Turner's Pensions Commission Report has refashioned the landscape of the pensions debate. In this briefing Help the Aged presents its analysis of where the report has left us. The Commission s Report offers a prescriptive package of reforms. Lord Turner has been insistent that his recommendations constitute a whole package and that awkward choices in different areas where action is required cannot simply be airbrushed out of the equation. However the Report leaves a degree of wiggle-room in how a balance is to be struck between its recommendations and in the crucial question of when its proposals should be implemented. The Report unapologetically concentrates on the long run, so necessarily cannot meet the aspirations of organisations like Help the Aged which are looking for faster progress towards ending pensioner poverty today. However, taking the Report at face value, Help the Aged finds a lot to be respected in its rigorous analysis and carefully nuanced solutions. Our summary, in section one below, identifies the parts which are particularly important to the Charity's immediate agenda, but also appreciates the parts which will benefit pensioners in the longer term. Our assessment has been reached against the principles which we set out in our publication Pensions not Pin Money 1. These principles have informed our contribution to the last five years of debate. During this time the landscape of the debate may have changed, but our principles have not. The declared aim of Government and the Pensions Commission was to reach a consensus about the way forward and in much of the Final Report the Charity finds its basic principles being driven forward. In that spirit, Help the Aged welcomes the Report. It does not meet all of our policy goals, but it moves in the direction of many of them and leaves the door open to a future implementation of most of them. In section two below, we place the Commission s recommendations in the context of the wider issues Help the Aged continues to pursue highlighting where the Commission fails to take us forward with the impetus we believe is required and deliverable to achieve our goals. Whilst we accept that there 1 Pensions not Pin Money, Help the Aged, Feb 2005
may be a price in achieving consensus, our ambitions for the lives of older people will remain high. Section One: Assessing the Pensions Commission Final Report There are some very positive proposals within the Pensions Commission Final Report: - The state system The case for more public spending is powerfully put. We agree with Lord Turner that modest increases in state spending on pensions are inevitable if we are to avoid a future where pensioner poverty is rife. In recommending a new settlement for the state pension we welcome particularly the recognition that individuals should accrue, during their lives, an entitlement to a state pension sufficient to lift them over the level of means tested benefits. Help the Aged's preferred model for the state pension was a Citizens Pension (or Enhanced State Pension as Lord Turner has called it). However the model Lord Turner proposes - in which a universal Basic State Pension and a Second State Pension based on contributions and carer credits, combine to provide all pensioners with a state pension above the poverty line. This proposal meets many of our concerns for the future state system. Help the Aged welcomes Lord Turner s acknowledgement that pensioners should share in the nation s rising prosperity, through linking the state pension to earnings. Crucially, Lord Turner recognises the need to do something to tackle the unacceptable poverty levels amongst pensioners today. He recommends that all those over 75 should be entitled to a full Basic State Pension. We want to see this recommendation taken forward urgently by government. This would improve the lives of many of the poorest pensioners in particular for women who have suffered for long enough from the gaps and inequalities in their current pension provision. These people cannot wait another ten years for action. Private pensions We welcome the proposal for a National Pension Savings Scheme, and the acknowledgement that employers, the state and individuals should share responsibility for future pension provision. Working longer The Pensions Commission rightly highlights the need for concerted Government action to enable older people to take an active part in the workplace in later life. Promoting flexibility at work, ending age based discrimination and improving access to training and development are all key to ensuring that older people can pursue fulfilling careers. The future of pensions policy The Pensions Commission argues for a more independent approach to determining pensions policy for the long term. An Independent Pensions Commission could help to ensure that future governments do
not renege on promises and could help to maintain the momentum of reform. We believe such a Commission could also play a role in ensuring pensions are fair and adequate. However, there remain some worries, which the Commission fails to address: Will the gentle growth in public spending on the state pension elements be enough to lift people out of poverty, and soon enough? Will people whose incomes rise above the present Guarantee Credit level, as a result of reform, lose access to other valuable benefits to which Guarantee Credit is currently the passport? Will employers who offer pension schemes continue to reduce the levels of their contribution and what impact will the introduction of the NPSS have on this? Section Two: Help the Aged Priorities Pensioner poverty today Pensioner poverty in the UK is a national scandal. The Government has said that it is interested in tackling the problem, but there is still no clear target for ending pensioner poverty. Help the Aged wants to see definitions developed and targets set towards the eradication of pensioner poverty. Means-testing and Pension Credit are the Government s current weapons for tackling poverty in later life, but with 2 million pensioners currently living in poverty and some 1.7m entitled people not claiming Pension Credit, few are convinced that this system is working. Even though Lord Turner was explicit that his remit did not extend to current pensioners his Commission still felt strongly enough to recommend that a full basic state pension be paid automatically to all over 75s to tackle the inequities and gaps which exist amongst current pensioners. Help the Aged has long argued that such an initiative would be a helpful first step on the road to eradicating pensioner poverty and we believe it should be implemented immediately. The other fundamental recommendation which could impact on pensioner poverty today was for the restoration of the link between the basic state pension and earnings. However, clearly a link to earnings, if based on today s desperately low pension level, even when paid at its full rate, will not achieve adequate financial self-sufficiency. The Charity still holds to the Citizen s Pension ideal, paid at the Pension Credit level to all, even if deemed risky and expensive by the Pensions Commission. Whilst the combination of basic and second state pensions outlined by Lord Turner would achieve the same ends for future pensioners, if rights were accrued on the more generous basis he suggests, only a more radical solution will fully meet the needs of today s pensioners.
Women s pensioner poverty There is a particular need for robust policies to address the issue of women s pensioner poverty. Currently only 30% of women reaching retirement age are entitled to a full basic state pension. The Pensions Commission s suggestions for tackling this include automatic entitlement to a full state pension at the age of 75, future entitlement to the BSP built up through residency, more dynamic carers credits to S2P (such that all those contributing either through work or caring can reasonably expect to accrue full S2P entitlement), and accelerated entitlement to S2P. In the context of women pensioners, these recommendations must not be seen as discretionary they are fundamental and possibly do not go far enough. Speed of progress A key question in examining the Pensions Commission Report must be whether the rate of progress proposed by Lord Turner and his colleagues is fast enough. The timescales proposed are somewhat leisurely given the scale of the pensions problem, but clearly quicker implementation would pose immediate short-term costs, bringing the argument back to what is affordable. However, should the affordability of the programme really be the main question? Should not the priority instead be put on social justice? The introduction of a full basic state pension for all over 75s is urgent if the intended beneficiaries are to feel any of the effects of this recommendation. For those already well into their working lives the speed of transition towards a universal basic state pension and improved entitlement to S2P both will be critical in determining whether these generations find themselves at risk of, or in poverty during retirement. It isn t enough just to think about those starting work in 2005! Whilst cost is of course an issue, if the government were to take immediate action and end the contracting out of S2P for those on defined contribution schemes as the Commission recommended, they would free up 4 billion a year straight away. This would cover cost of the full state pensions for all over 75s and restoring the link between earnings and the state pension Barriers to working longer Lord Turner has made it clear that working longer is an essential part of the package, and Help the Aged welcomes the fact that the need for more training and support for older job-seekers is identified in the Report. We also welcome Lord Turner s recognition that the continued use of mandatory retirement ages is unhelpful and should end.
However the practicalities of making more employment opportunities available to older workers, and how to engage with the SME sector in particular, need more detailed attention. Many people already want to work longer, up to the state pension age and beyond (where already 10% are still economically active), but are prevented from doing so either by their employers or through the lack of available training. These issues must be addressed properly or working longer cannot remain a viable policy option. Health Inequalities Help the Aged is particularly concerned that the requirement to work longer will disproportionately affect the poorest and most vulnerable who are unlikely to share the increased life expectancies of the rest of the population. The Government must make real headway in reducing the health inequalities which exist in the UK before it can justifiably ask people to work longer. Differences in healthy life-expectancy should be key considerations in deciding when a state pensions should be payable, and if state pension ages should increase. In addition, Incapacity Benefit is scheduled for reform, but it is vital as a precursor that adequate measures which can help people back in to work positively and appropriately are in place. A wider view of poverty Finally, in developing its response to the Commission s Report it will not be enough for the Government to see pensioner poverty as just being about income: it must also be seen as a social exclusion issue. Poverty of choice, poverty of place and poverty of opportunity are all concepts on the Government radar, but more vigorous action is needed to tackle them. Underlying all of these, the scar of age discrimination still blights our society and there must be further moves to more civil and civic rights for older people. Whilst the Pensions Commission s recommendations provide the foundations for a secure retirement for pensioners, there will always be wider work to be done to create real quality of life for our older population.