Pensions Minister Ros Altmann has dismissed concerns that the State Pension will be scrapped, saying that while reform was essential she firmly believed “there will always be a State Pension and there should always be a State Pension”.
Speaking at a briefing in Westminster hosted by Team Spirit and the Pensions Advisory Service on Wednesday, Altmann said that while the pension system was one she had inherited rather than designed, she welcomed the introduction of a flat rate pension last week in place of the old means-tested State Pension.
Earlier in the day Centre for Policy Studies research fellow Michael Johnson put to the Work and Pensions Select Committee that the State Pension should be scrapped, calling it inefficient.
“It is important to reform our State Pension system for the future. The State Pension revolution is needed, along with the revolution in the private pension sector with the introduction of auto-enrolment,” Altmann said to the briefing, which was attended by members of the pensions industry, including former pensions minister Steve Webb, who now works for insurer Royal London.
Altmann pointed out that while it had been three and a half years since auto-enrolment was introduced in October 2012 there was still much work to be done.
“Only 6% of employers have set up pensions so far, and minimum contributions have to quadruple over the next few years. We have a hell of a long way to go,” she said. “The tradition in this country is for someone else to take care of us in retirement but this is no longer the case. We are on the cusp of a retirement revolution, living fuller lives for longer, and we must encourage people not to spend all their money too quickly.”
Minister Calls for Industry Help with Education
At the briefing, the Pensions Advisory Service revealed that one year on from the introduction of pension freedoms many people are still in the dark about what the changes mean for them – and how to make the most of their options. In a report entitled Realising the Pension Revolution, the service found that: “There is a distinct lack of understanding about what income people should expect to receive – and what they need to receive – in retirement. 73% believe the State Pension will enable them to live comfortably in retirement, with one in five citing it as their main source of income.
“Nearly a third admitted they do not know how much pension income they will obtain, with 31% saying they didn’t know how to obtain the estimates for this. The overwhelming majority stated they see pensions as complicated. It is therefore perhaps unsurprising that nearly three times as many people see them as depressing rather than liberating.”
Altmann agreed that the complexity of pensions was a huge barrier to entry for so many people, and that education was key in ensuring the success of auto-enrolment and pension freedoms.
“If we waited to financially educate people before we launched auto-enrolment if would have pushed back the launch by more than 10 years,” she said. “Instead we hope to educate members along the way, and we now have an opportunity to embed financial education and planning into auto-enrolment going forward. But it will take time to educate the public on finance.”
The minister said that even financial education in schools was a challenge because many teachers do not understand finance and therefore cannot teach the children and called on the pensions industry to help the government change this.
“We’ve set up systems such as the Money Advice Service to help people deal with these changes, how can we get people to get the help available to them?,” he asked. “I want to work with the pensions industry, on a standardised form on the cover of the Wake Up packs people receive at retirement for example. I am hopeful we can do this and that introduction will help the guidance available be a success.”
