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When I last stood on a platform in this city in front of an audience this large it was to receive my degree.
That was 1986.
It was the era of bad hair, worse fashion, and Frankie Goes to Hollywood.
It was the year the human genome project was launched; that IBM launched its first laptop computer; and it was the year of the “Big Bang” when the London Stock Exchange was deregulated.
A lot has changed since then.
- For a start, this magnificent conference complex didn’t exist. These docks were just a crumbling wreck.
- The Militant Tendency is no longer running the Council.
- And Liverpool and Everton were facing each other in the FA Cup Final, not languishing at the bottom of football’s top division.
A lot’s changed in our world of pensions too.
Then:
- 5.5 million people were members of private sector DB schemes. Today, it is just half that.
- Average scheme contribution rates stood at just over 9%. Today, it is twice, or even three times, that.
- Our Annual Survey didn’t even bother to count the number of closed schemes.
But today, nearly 80 per cent of private sector DB schemes are closed to new entrants.
Of course, we can’t kid ourselves that everything in the garden was rosy back then:
- It was still legal (just about) to exclude part-time workers from schemes.
- It was still legal to pay women and men different pensions for the same periods of pensionable service.
- We didn’t have the TPR or PPF – and no matter how challenging they are, we are better off with them than without them.
But over the intervening period, there can be no doubt that our pensions system has become more expensive, less adequate and less sustainable.
- More expensive because, as Lord Turner pointed out, the cost of providing pensions has doubled since many were first set up.
- Less adequate because we have seen contributions and coverage fall.
- And less sustainable. We now have 2 or even 3 tier pensions workforces and growing intergenerational pressures.
As the title of our conference suggests, Britain’s pensions system is broken.
Can we fix it? Yes we can – and we must.
Not for the sake of the sustainability of the pension system itself, but for the sake of societal sustainability. At a time when our society is ageing, will it be sustainable to have generations of poor pensioners? Will it be sustainable to have a generation of people priced out of saving? I think not.
Of course we could just take the easy option and wring our hands and let it all “wither on the vine”, as one ex pensions minister famously said about the basic state pension.
Well we could…but I think history probably tells us that the “withering on the vine” approach catches up with us sooner or later.
So if we can fix it – and I believe we can – the question is how?
Well, for a start we need better engagement from the politicians. Now is not the time for them to tinker. We need bold decisions. And I was encouraged by the Minister’s comments yesterday.
Goodness knows when it comes to other policy areas, there seems to be no shortage of bold decision making - the NHS, Free Schools, the IDS welfare reform plan, child benefit – now that IS a bold decision. The list goes on.
We need to see that ambition carried through into pensions policymaking.
Yet too many times I’ve heard politicians ask why they should spend their limited political capital on occupational pensions. They ask “what’s in it for me?”
Or they say they can’t bind future Governments into spending commitments taken today.
But that’s precisely what Governments do!
Or they don’t act because any political pay off will be long after they’ve left office. And let’s face it that isn’t very long at all, if the recent history of pensions ministerial appointments is anything to go by. So the long view that we require becomes a political reason not to act.
So it is the job of the NAPF - and it is the job of everyone in this hall - to help develop the solutions to fixing Britain’s broken pensions system.
Which brings me back to the how.
When I was a student here, I studied economics.
Now, economists are fond of analysing things in “stock” and “flow” terms. So allow me to do the same with our current pensions crisis for a moment.
The 2012 reforms will, to a large extent, deal with the flow issues – that is getting more people saving in pensions in the first place. These are important reforms and it is why our submission to the Government’s review emphasised that the Turner settlement is broadly the right one.
We, like the other major stakeholders, warned against shrinking the gene pool for auto enrolment.
Taking out small firms or people earning under £15,000 a year, as some suggest, will only perpetuate the pensions crisis.
It will exclude from the benefits of pension saving the very people for whom the Turner reforms were created.
Sure, the Government must take a much more pragmatic approach than its predecessor to make auto-enrolment simple. If it is too complex, some employers may just throw in the towel. If that happens the risk of levelling down that we have always warned about will become a reality. Over the long term what won’t be good for individuals, taxpayers, or Government.
If the current review does not deal with these issues it will have failed. But I am optimistic that it WILL deal with these issues and that our lobbying will have paid off. And I was encouraged by Steve Webb’s comments yesterday.
But it can’t end there. We have to have good pensions to auto-enrol people into. And that means we have to have robust and durable workplace pension arrangements.
Which brings me to the “stock” issues.
The Hutton Commission has been charged with tackling public sector pension reform, and we will hear shortly from Lord Hutton himself. John – we welcome your report which is very much in line with our own recommendations. With our 75 LA members will contribute actively to the next phase of your work.
But what of private sector pensions? What of the “stock” of pensions on which millions of people currently rely for their future well being?
Well, save for the addition of several hundred new regulations, they have been largely ignored by politicians and policymakers for over a decade. Instead they have overseen a reduction in the stock of workplace pensions – and with it good quality retirement incomes.
Yet WE ALL KNOW that pensions workplace pensions work best. It is only workplace pensions that can effectively deliver scale, reach, high standards of governance, risk management and trust. And in so far as employees trust anyone when it comes to pensions, they trust their employer.
In other words, people still value pensions highly and believe that pensions can and should
be provided through the workplace.
44% of people think that a pension is the best way to save for retirement – twice as many than think that property is the best, and over 3 times more than those who say ISAs are best.
So it’s not surprising that people value pensions as the most important employee benefit after their salary.
- They value them more than bonuses and flexible working hours put together.
- Even generous holiday entitlements don’t come close.
People know a good thing when they see it.
So why are we so bad at letting them see it?
According to a NAPF survey, only 1 in 8 job ads carry any pension information according to our recent survey.
Yet 8 in 10 people say they would be more likely to apply for a job if the company offered a good pension. And for over half, it would be a decisive factor in whether to accept a job or not.
By not promoting the pension it seems to me that employers are at risk of missing out on attracting top talent. Our labour market may not be the tightest it’s ever been, but we still all want to attract the best staff.
So come on – let’s not be afraid to “mention the pension”?
As we say in Pension Quality Mark land – “if you’ve got a good pension, don’t keep it a secret”.
That is why we have written to the CIPD and Recruitment and Employment Confederation, urging them to raise this issue with their members in the HR and recruitment professions.
This could act as a powerful “nudge” to get people saving for old age. But a nudge here and a nudge there won’t be enough.
So much for our responsibilities. There is more that we could do to build on our successes and the strong commitment of many employers to quality pensions.
But we have to be alert to the problems and must recognise that the workplace pillar of pension provision is crumbling.
- 73% of private sector workers do not belong to a workplace pension.
- Over the next 5 years, further – rapid – DB decline seems inevitable.
- Whilst there is much good quality DC provision about as our Pension Quality
Mark shows, DC can be sub-scale, inefficient, costly and lacking in governance.
- There is not enough scope for risk sharing.
- And employers are rethinking the place of pensions in their remuneration packages. What might this mean for retirement saving over the longer term?
We must address these challenges.
The Coalition Agreement – which, by the way Steve, I have read…page 1 world peace, page 2 auto-enrolment…contains a commitment to “reinvigorate workplace pensions”.
Isn’t it great – finally – to have a government that actually gives that commitment in black and white! Perhaps we’ve finally overcome the decades of political paralysis I talked about earlier.
Yesterday you heard our Steve Webb say he believes the NAPF should play a leading role in helping government to meat that commitment to revitalise workplace pensions.
NAPF will rise to that challenge and do just that.
We have a responsibility
- not just to respond to the debate,
- not just to follow the debate,
- not just to comment on the debate
but to LEAD that debate.
WE need to provide the solutions that will tackle the systemic pensions issues we face, so that we have sustainable, adequate and affordable workplace pensions.
After all, aren’t we are the voice of workplace pensions? And doesn’t our strap line say “securing the future of pensions”?
If it’s not our job, whose is it?
So over the next few weeks we will be announcing proposals & structures for how we will take forward and lead this debate.
We need to think about and openly debate issues and move beyond some of the stale arguments which have a bit of a Groundhog Day feel about them.
Be clear, I’m not talking about reviving DB. We all recognise where we are on that. Nor am I talking about unpicking 2012.
But we do need to think about:
- the barriers to workplace saving and what will overcome these barriers;
- How we develop DC
- How we ensure an orderly exit from DB.
- The future shape of workplace retirement saving and the role pensions play within that.
- The role of pensions in the economy – all those billions of pounds that Lindsay spoke about yesterday – and how and where they are invested.
Britain’s pension system may be broken, it may have got past the stage where a few running repairs will do, but the good news – as we’ve heard on this stage in the last 24 hours – is that a debate is starting around the NAPF’s ideas on how to put it right.
- A stronger, simpler state pension.
- Modern, risk-related regulation.
- A new generation of workplace pensions.
We have put these proposals forward and politicians of all parties are starting to pick them up. But there’s a long way to go and that’s the debate we now need to lead.
So we CAN fix Britain’s pensions system.
We MUST fix Britain’s pensions system.
And I am confident that we will.
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