U.K. Government Moves to Ease Future Pensions Crisis

Individuals must take personal responsibility by saving for later life as part of a renewed social contract designed to avoid the nightmare of a pensions crisis in years to come, U.K. Secretary of State for Work and Pensions Peter Hain said today.

Speaking ahead of the second reading of the Pensions Bill 2007 - which proposes automatic enrollment from 2012 into good workplace pensions with an employer contribution of at least three percent - Mr Hain said action was vital so that future generations of workers were not left struggling to pay for an aging population.

He said: “The Government’s pension reform package is one of the most radical changes in the 100 years since the first state pension was created by the Old Age Pensions Act 1908.

“And radical change is needed. One hundred years ago few people lived long enough to collect a State Pension - on average men only survived to age 49 and women to 53. Today, one in four babies is expected to live to 100.

“People are living longer, are more active and expect to be able to enjoy the type of lifestyle in retirement they had while working.

“Around three quarters of people say they will need more than the State Pension to live on. But actions do not match words - only around four in 10 working age people are saving into a private pension.

“With increasing longevity, if we don’t tackle the challenge of under-saving, by around 2050 we face the nightmare of a pensions crisis with people of working age struggling to pay for an aging population.

“The state, individuals and employers all share in the responsibility to avert such a crisis - so we must act decisively now to renew the social contract between us.”

Mr Hain said the Pensions Act 2007 put in place the first part of this new settlement - providing a solid foundation for private saving by extending coverage from 2010 and restoring the earnings link to the Basic State Pension in 2012, or by the end of the next Parliament. State Pension age will also increase gradually to 68 by 2046 so that future generations are not left footing the bill for increasing longevity.

The new Bill would build on these reforms by making it easier for people to save through automatic enrollment into a qualifying workplace pension scheme, including the new personal accounts scheme.

Mr Hain said: “Automatic enrollment will combat the inertia which is such a barrier to saving, while the minimum employer contribution and tax relief will mean individuals’ contributions are matched £1 for £1.

“But it’s crucial that individuals play their part in this renewed social contract. To achieve the type of lifestyle they expect in retirement they must take personal responsibility by participating in a pension.

“For most, the downsides of not saving far outweigh the small risk of saving and later regretting it. These reforms will give millions of people the means to fulfill their aspirations for a better and more secure income in later life.”

The second reading of the Pensions Bill in the House of Commons will take place later today.

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