Backing people who do the right thing, work hard and save for their retirement

May 29, 2014 6:51 pm

Under David Cameron millions of working families facing a cost-of-living crisis are finding it harder and harder to save for their retirement. The amount the country saves is set to fall across the next Parliament so for millions the cost-of-living crisis could continue well into their retirement.

Getting more people save is good for everyone, taxpayers, savers, business and the wider community. The IFS estimates that more than 1 in 10 of those currently aged between 50 and the State Pension Age are on course for a pension income at retirement of less than the level of Pension Credit, so likely to be reliant on means-tested benefits to avoid poverty. And getting more people to save today will help control the benefits bill for future generations.

pension.jpg

That’s why I believe that the proposals I set out in a speech to the Resolution Foundation today were so important in preventing today’s cost-of-living crisis continuing for tomorrow’s pensioners, and making sure that more workers can look forward to their retirement.

But while Government ministers rarely praise speeches by their political opponents the astonishing response from the Pensions minister to my speech to the Resolution Foundation was certainly a surprise. He condemned the plans which Labour are considering to help an additional 1.5 million working people save for a pension. His condemnation says everything you need to know about the priorities of this government, they put a privileged few before hardworking families.

The proposals to include the 1.5 million workers, over 1 million of whom are women, in workplace pensions build on the work done by the Pensions Commission established by the last Labour government which set out a plan to help more people save into workplace pensions. But the Government excluded 1.5 million people from workplace pensions when they increased the level of earnings needed to qualify for auto-enrolment.

So today I announced that Labour is considering proposals to lower the earnings threshold for automatic enrolment in a workplace pension scheme from its current level of £10,000 to the Lower Earnings Limit for National Insurance, currently £5,772.

Clearly the idea of helping people who work hard in low-paid jobs to save for a pension is not something this out-of-touch government backs as the Pensions Minister tweeted this morning;

‘Extending pensions auto-enrolment to those for whom it may not make financial sense would be unfair and irresponsible.’

It’s quite a state of affairs when we have a Pensions minister who says that 1.5 million workers should not be saving for a pension. It’s sadly another example of this out-of-touch government who have imposed the policies like the bedroom tax and granny tax on the country. When Steve Webb thinks about pensions he clearly thinks of those who can afford to buy a Lamborghini with their savings, not  the millions of ordinary workers working hard to put aside modest savings for their retirement.

In addition to helping more working people to save for a pension I also announced the creation of a new independent taskforce to boost the retirement income for savers. It’ll be chaired by Professor David Blake, Director of the Pensions Institute and it will look at two important areas; the introduction of collective pensions to the UK and how to ensure savers get the best deal in the retirement market.

Collective pension schemes in the Netherlands and Canada, have boosted retirement savings by up to 30 per cent. Today I announced that Labour would legislate to enable these schemes in the UK. I am determined that Labour will always be on the side of people who save and we’ll act to ensure they get the best possible deal when they turn their savings into a decent retirement income.

So while I welcome the new flexibilities announced in the Budget, I am concerned that savers could be facing new fees, charges or pension products which offer poor value that could take nearly a third out of their savings.

My speech today shows how a Labour government is determined to back people who do the right thing, work hard and save for their retirement. People who work hard to save need a government that’s on their side. Earlier today when the Pensions Minister argued against helping those on modest incomes to save for a pension he reminded us how out of touch his government are. We cannot afford to be two nations in retirement where the benefits of growth accrue to only a few, while the majority of working people feel left behind.

A Labour government will help more people to save to ensure retirement is something to look forward to, not something to fear.

Rachel Reeves is Shadow Secretary of State for Work and Pensions

  • PoundInYourPocket

    The onus is shifting from Pension Credit to individual small personal pensions.
    But we need to know the details to be able to appraise the pollicy. Will Reeves roll back Pension Credit on the quiet ?

  • Quiet_Sceptic

    Very strange article.

    It doesn’t address the elephant in the room – does it actually make financial sense for people on very low incomes to save for retirement, particular if means testing will take back part or all of any pension income they’ve saved?

    I’m all for people taking responsibility for themselves but I really struggle to see the benefit of someone on a very low income sacrificing today to save toward a pension which would give them little or no benefit in the future because it will be clawed back.

    Is encouraging people on very low incomes to save for retirement ‘doing the right thing for responsible people’, because will they actually benefit from their saving? Will they be better off than the people who don’t do the right thing?

    • JoeDM

      Good point.

      Do the right thing, save for your retirement and then get clobbered by a means test for your state benefits for which you’ve paid NI all your working life when someone on the other side of town who has never worked gets the lot !!!

      • gunnerbear

        Or a Labour CotE piles in and raids occ. pensions and thus takes billions out of everyone’s savings.

  • JoeDM

    So now all working people will be auto-enrolled into a defined contribution scheme that will be eaten-up by fees, grow less than inflation due to monetary policy and be at the mercy of any future government that needs cash (remember what Gordon Brown did!).

    And then what? Will you return to making them buy an annuity? That seems to be the logical outcome of this policy.

    • gunnerbear

      Apologies JDM, missed this comment about Gordo the Ungreat.

  • Duncan Hall

    Not commenting on the merits of the policy yet but I hate this “do the right thing” mantra, and associate it with Cameron. It implies that people who, for whatever reason, aren’t “working hard’ are doing the wrong thing. People who would love to work but either can’t find a job or are prevented from accessing work owing to a disability – or indeed those who choose to stay at home to raise a family – are pointlessly excluded from this language. I want to hear a long-term political strategy aimed at allowing us all to work a lot less hard!!

  • MikeHomfray

    Yes, and what about those with a broken work pattern, or have been sick, or too low paid to be able to afford a pension, which would only see the individual caught in the poverty trap anyway?

  • Rex Hale

    Cliches and platitudes as usual from RR…It’s staggering that she’s seen as one of the high flyers in the shadow cab…

    • MikeHomfray

      The collective pension schemes are a good idea – but its all the slogans and soundbites which drive me mad. Mind you, they started with Blair and Brown. I wish we could leave them be.

      • gunnerbear

        “I wish we could leave them be.”
        I wish Gordon Brown had thought that as he planned the raid on my occ. pension fund.

      • Rex Hale

        Yes, underneath it all there IS some substance. That’s the most frustrating thing about Reeves. There IS something real actually there, some sound political thought. But she makes Ed look like The Great Communicator….

    • gunnerbear

      Of course it’s clichés and platitudes from RR – she’s a politician. No better or worse than most in the HoC.

  • BusyBeeBuzz

    Education, education, education!

    Getting all MPs to construct good sentences sets a good example to school children.

    “Getting more people save is good for everyone…”

    After you have corrected the typographical error, please talk to some real people in the real world about how much money they have to save after they have paid their bills.

  • rooptheloop

    I for one will opting straight out. I simply can’t afford to save for a pension. a strange article indeed.

  • MonkeyBot5000

    “Getting more people [to] save is good for everyone…”

    Not if the money they are saving would otherwise be spent on goods or services that your business provides.

    Not if the value they poor into that pension pot is creamed off in fees.

    Not if it grows so little that you still end up relying on the state pension and benefits to survive.

    • gunnerbear

      Careful MB, hellfire, we’re in agreement!

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