15 July 2005
David Blunkett has signalled his scepticism over claims by a number of organisations that the bedrock of a reformed pensions system should be more generous and non-means tested state provision.
The work and pensions secretary used a speech to the Fabian Society on July 12, his first major intervention on the pensions reform debate, to stake out his opposition to such an approach.
In recent months there has been growing pressure from a coalition of lobbying groups, trades unions and think-tanks for a universal state pension indexed to earnings and set at a level that prevents poverty without means testing.
That would increase the current basic pension for a single person from £82.05 to £109.45 per week.
But Blunkett warned that the better-off were likely to benefit most. He gave the example of someone on median earnings who worked for 40 years and saved at 7%, saying they would be £17 per week worse off if the savings element of the pensions credit were scrapped.
'Is that really fair?' he said. 'You can find that the people who benefit the most out of it are not the ones you intended to help.'
Instead, Blunkett announced the publication of guidelines from his department to help employers automatically enrol staff in their company pension schemes.
The 'opt-out' approach stops short of making saving for retirement compulsory, one of the proposals being considered by Adair Turner's Pensions Commission, which is due to report in the autumn.
Blunkett announced that he would convene a conference in advance of the Turner report, bringing together all the parties involved in the pensions debate.
The Fabian Society event also marked the launch of a pamphlet warning that a major overhaul of the UK's pensions regime would be achieved only if it was built on a broad consensus.
The politics of pensions reform, by former minister John Denham and Fabian Society research director Richard Brooks, says that as well as a more generous basic pension, tax relief on pensions contributions should be directed away from high earners towards the low paid.
State support for second pensions must strongly encourage personal responsibility, and a concerted effort to help women, carers and others with intermittent working lives must also be central to any reform package, the authors said.
But Denham, speaking to Public Finance at the launch, said he was not disheartened by Blunkett's comments. 'I'm not surprised, as it'd be a big step for the government to take. But most people who have looked at the system have come to the same conclusion. If you want to incentivise savings you have to reduce dependency on means testing.'
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