» Tuesday, October 12, 2004


Asked for a response to the Turner report on pensions, the Prime Minister’s Official Spokesman (PMOS) said that it was important to be clear about the role of the Pensions Commission. Everyone recognised that there had been some problems with some pensions schemes which we had now addressed by setting aside £400m as well as establishing the Pension Protection Fund – a measure contained in the Pensions Bill currently going through Parliament – to help people who had already lost their pensions and to protect those whose pension schemes might get into trouble in the future. The purpose of the Pensions Commission was to look at the longer-term issues surrounding pensions, the problems with which, as Adair Turner had underlined, had been around for at least two decades. As he had also acknowledged, it was not something that was going to cause a problem in ten years’ time, but it would cause difficulties in twenty years’ time if not tackled now. That was why he had called for a long-term sustainable answer to this issue, which was something with which the Government fundamentally agreed. Today we welcomed the interim report and the detailed analysis which it contained. The Prime Minister had set up the Commission precisely so that we could take a long-term consensual approach to the whole issue, rather than look for knee-jerk short-term answers. We would obviously take part in any consultations arising from the report and would await Mr Turner’s final report next year.

Asked if raising taxes to plug the savings gap was an option which Downing Street had already closed off, the PMOS said that it was important to be careful about using terms such as ‘savings gap’, particularly in conjunction with the figure which had been bandied around recently. Both in an interview on the Today Programme this morning and in his report, Adair Turner had challenged the idea of a savings gap as being too simplistic because it would imply that the Government had no intention of doing anything to tackle the pension problem between now and 2050. Quite clearly that was not the case, as the Prime Minister’s decision to set up the Pensions Commission demonstrated. Moreover, the Chancellor had set out the Government’s position on taxation. That had not changed. Asked if he was implying that there was no savings gap, the PMOS said he was simply making the point that the Prime Minister had decided to set up the Pensions Commission precisely because he recognised there was a problem relating to pensions. Adair Turner’s conclusions today had not come as any surprise. His remit had been to analyse the situation, which was precisely what he had done. We looked forward to his full report next year. Put to him that previous reports had used the term ‘savings gap’ to refer to the problem of individuals not saving enough for their retirement rather than the Government making provisions for them to save, the PMOS said that as Mr Turner had made clear today, it was impossible to make calculations based on what were inevitably differing expectations, differing needs and differing rates of saving for individuals. That was why he did not believe the term ‘savings gap’ to be sensible.

Put to him that Alan Johnson’s assertion today that it would be wrong to raise the state pension age had closed off another option, the PMOS pointed out that it was not the first time the Pensions Secretary had said such a thing and we supported his position. Adair Turner believed it was necessary to create a situation in which people were encouraged to want to work longer. The core of the problem was the change in demographics which was partly a consequence of the market not adapting to the reality of people living longer and the swings it had seen in recent years. This was a problem not only facing this country but all developed countries, and was clearly something we needed to address. Put to him that the only options left were compulsory pensions or somehow persuading people to save voluntarily, the PMOS said that as the Government had made clear, we believed it was worthwhile pursuing the latter. That said, Adair Turner had set out the options in his interim report today and would examine them all over the coming year. His conclusions would be contained in his final report.

Asked if the Government was going to wait until after the next election to announce how it was going to address the problem of pensions – which could be as late as 2006, the PMOS said that it wasn’t for him to comment on speculation about possible dates for the election. Adair Turner had said that he would produce his final report this time next year. As the Prime Minister had said in his speech yesterday, the best thing would be to reach a consensus on this issue. We would wait and see where the debate was this time next year. Asked why the Government wanted to wait another year before making the difficult decisions that ought to be taken immediately, the PMOS said that now that the analysis had been completed by the Pensions Commission, it had to be tested against expert opinion in the pensions industry and, indeed, more widely. Only after that would people be able to come to firm conclusions. Given the fact that this was something which had been around for twenty years and would not actually begin to bite for another twenty, it was worth taking another twelve months to think through the issues properly.

Asked to what the Government would attribute the deterioration in the pensions and savings system since 1997, the PMOS said that there were a whole range of issues. One was the change in demographics in terms of the fact that people were living longer. This was something to which the market had not adapted. Other changes included lower savings and the fact that declining pension membership had been masked by booming stock markets – what Adair Turner called ‘irrational market exuberance’. However, it was important to be clear that these changes had not suddenly appeared in 1997. As Mr Turner had underlined, the problems relating to pensions had been around for two decades. That was why it was important to take the time to come up with a long-term comprehensive approach to address the whole issue.

Asked if the Prime Minister believed that the current pension credit system was complicated, the PMOS said that it was important to recognise the situation which the present system had been designed to address. In 1997, 30% of pensioners had been living below the poverty line. As a result of the measures taken by the Government, pensioner poverty had now fallen by two thirds with two million pensioners being lifted out of absolute poverty. The poorest one third of pensioners were now £1,750 per year better off. The average pensioner was now £1,350 better off. Tax credits allowed people to save for a second state pension which would help to pull them out of pensioner poverty. That was what the focus on pensioner poverty had been about and we made no apology for that. Adair Turner recognised the reasons for the measures that had been taken and had acknowledged that it had been the right thing to do.

Asked if the Prime Minister believed that the extension of means testing under the pension credit was sustainable in the long term, the PMOS said that there were many ways to build incentives into the system. Some, for example, would allow pensioners to draw occupational pensions from a company as they continued to work. Others would remove the obstacles relating to age discrimination in the workplace, as indeed the Government would be doing from October 2006. Asked again if the Prime Minister believed that the pension credit was sustainable in the long term, the PMOS said that the Prime Minister fully supported the way in which pension credit had been, and continued to be, used to tackle the issue of pensioner poverty. Asked if he believed that it would discourage people from saving, the PMOS reiterated the point that there were many incentives in the system.

Asked what rating the Prime Minister would give the Treasury and DWP for the way they had handled the whole issue of pensions since 1997, the PMOS said that as Adair Turner himself had underlined, the pensions problem had not suddenly appeared in 1997. It could be traced back two decades. Since coming to office, the Treasury and DWP had addressed the issue of pensioner poverty. Prior to 1997, 30% of pensioners had been living below the poverty line. Since 1997, pensioner poverty had been reduced by two thirds. The Prime Minister believed that this was record of which the Government should be proud. Asked if the Prime Minister believed that the £5bn a year tax increase on dividends since 1997 had helped to reduce the value of pension funds, the PMOS said that he had heard an independent financial commentator today describe this point as a side issue. The reality was that the tax dividend had been offset by changes in corporation tax. As he had already pointed out, there were other real issues which had affected the pensions industry, such as swings in the stock market, lower interest rates and, above all, the fact that people were living longer. This was something which had had an effect on all developed countries, not just the UK.

Briefing took place at 11:00 | Search for related news


  1. I understand that many people (including me) will have to work past their retirement age for financial reasons. This is a bitter pill, especially when you have worked hard all your life, but for one reason or another have not been able to save for your retirement. In my view the Government could help by allowing earnings in retirement to be tax free, or at the very least the state pension to be non-taxable if you do continue working. What is the point in having to work past retirement to supplement your state pension, when by doing so your state pension is taxed?

    Comment by Margaret Jones — 14 Sep 2005 on 12:46 pm | Link
  2. "What is the point in having to work past retirement to supplement your state pension, when by doing so your state pension is taxed?"

    So that we can all help the Government wage wars of aggression against countries like Iraq :oD

    Comment by PapaLazzzaru — 14 Sep 2005 on 10:12 pm | Link
  3. Are Adair Turner’s deliberations based on the old age support ratio or the economic support ratio. As you will know by now, the difference is crucial to forthcoming decisions.

    Comment by cyril smith — 24 Apr 2006 on 11:05 am | Link

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