Ros Altmann, Director General of Saga recently attended the Westminster Employment Forum event: Reforming retirement and the state pension - assessing the impact of Government's proposals. Below is a transcript of the event:
Good morning everybody, just a quick introductory few remarks.
Basically, what we’re talking about today is people’s lives and it’s also about the fantastic success of medical science and economic development. You see, in the 1950’s or so people would spend around two thirds of their life working and around one third of their life, either before starting work or after finishing work, if they were lucky, not working. What we’re doing now is people are entering the labour force later, working full time for about 45 years, many people have finished before 65 but let’s assume that and then living much longer, so that around half of their lives are being spent not working, but it’s just not realistic to keep going like this and proper reform is long overdue. Basically, current expectations of retirement and pensions are simply unsustainable and our State Pension system, in my view is not fit for purpose.
We need to be realistic about pensions. We have, at the moment, a State Pension system that is too complex, too mean in terms of the amount that it pays out and relies on mass means testing, which then penalises poorer people who either want to keep working with a £5 a week earnings disregard or, if they have done some private savings. This was as short term fix, it is not a long term solution and basically pensions, both State and private are out of touch with the reality of all our lives, with demography, with financial reality, pensions have lost touch. And essentially, pensions alone cannot solve what we call the pensions crisis and what we call the pensions crisis is really a pensioners crisis, because more people will be coming up for traditional type of retirement without much money in terms of what they will live on as a pension. And to be honest, we all probably know that NEST and 30 years contributions at the kind of minimum levels that have been set won’t necessarily deliver much on top of the State anyway. So what we actually need is what the Government is talking about which is a flat rate decent minimum on which people can build something else for themselves. We still have 60% of our pensioners living on less than £9,940 a year. The baby boom generation will want more than that. There is no doubt about it. So, we do need a decent State Pension which everybody can understand and then people having more money on top of that. We haven’t kept up with longevity. Pensions have been trying to stretch longer and longer however long people live, but it’s not working and as more people live longer and longer pensions will either become much smaller or the system will fall over as there aren’t enough younger taxpayers to keep paying the money.
Essentially, we have to rethink what we currently call retirement. And this isn’t a bad news story, this is a fantastic news story. It’s a fantastic opportunity to grasp a new phase of life which previous generations couldn’t have even dreamed of. What I call bonus years. Obviously, some can’t achieve this but most people can if they change their thinking. A period of life after your full time career when you are cutting down gradually from work rather than suddenly stopping (which has been proven to be rather unhealthy) and certainly is going to mean that people won’t have much money to live on. Then retirement becomes a process rather than an event.
Consider working two or three days a week with four or five days a week off and more money to spend. Because at the end of the day private pensions cannot guarantee a high lifelong income and really nor can the State and for this, the ending of the default retirement age is absolutely brilliant. It’s a massive milestone which should have come long ago and I’m not sure people have appreciated quite how fundamental this really is for the labour market going forward. It doesn’t take jobs away from young people, that’s a fallacy but it also doesn’t force people to keep working. What it does is, it stops employers forcing them to stop working. Saga surveys consistently show that people want to keep working.
Many of our over 50’s already say they want to work past 65. 71% would rather work part time and in fact 7% are already working past the age of 70 and it’s not just for the money either. They enjoy work, they want the feeling of usefulness, they like having friends, they like keeping active and ending the default retirement age can open the way for new conversations between employers and workers to focus on what they can do rather than what they can’t do. And quite honestly, if we don’t do this we will all be in trouble, it’s a lose-lose situation what we’re doing now.
We have an employer guide and an employee guide on the Saga website to help people think about the sort of life going forward after the default retirement age finishes and it can be a win-win situation. Effectively, we’ve got a new future working full time for maybe 40 years then, after that, bonus years of part time work still engaging in economic activity. More economic growth, more money for people to spend and more active and productive population. The end of the default retirement age is an essential part of this and reform of the State Pension is an essential part of this so people can plan ahead and know that it is worthwhile either to save or to keep working, so that we get away from the old stereotypes.
So basically, to help reform both pensions and retirement the Government needs to set out the sustainable path of a decent simple State Pension, there is no magic age beyond which you should expect to be paid not to work at all which is essentially what we’re currently doing with pensions, and adjusting the pension age with fair notice. I agree with Gregg that actually the current plan has not given women fair enough notice even after the changes but we are where we are and we have to go forward. We need urgently to overcome the kind of age discrimination that still exists. People are not old at 60, they are not old at 65 or even at 70 in most cases in the conventional sense of thinking about the word ‘old’ when you’re considered past it and you can’t do anything. Government can do all kinds of other things like encouraging long term savings, more flexibility in the pensions product rather than just a locked box, I believe, would help encourage more saving. I know people worry about it being frittered away but I think actually the best is the enemy of the good here; and ending the asymmetrical regulation that we’ve had from the FSA which encourages people to borrow and discourages saving, that has been going on for far too long; and of course education and advice to help people understand what’s going on.
There’s a whole new future ahead, new thinking about our lives, we need to plan for it now, it’s already getting late. People who have shorter life expectancy may not be able to enjoy it all but the majority of us will be able to so I hope that we will embrace it.
Thank you very much.
Pensions for all? Assessing the likely impact of automatic enrolment
Questions and comments from the floor
Gregg McClymont MP: Thank you very much Niki. Now we have by my calculations about 35 minutes for discussion so with the agreement of the panel, I will take contributions in three’s and we’ll see how we get on, so questions for our panel please. Lady at the back.
Dr. Jay Ginn:
Thank you, I want to ask a question of Ros. I share your enthusiasm for longer working but I do have worries about those who have caring commitments and who might like to work longer and would need to, to get a decent pension but can't and also is there a sufficient supply of suitable jobs for people who are older? Suitable in terms of not being manual jobs, suitable in terms of all sorts of things that affect one as one gets older, will there be that supply of part time jobs that you look forward to?
Gregg McClymont MP: Thank you very much, further questions?
Richard Walter: From Oval Group.
Does the panel think it’ll be possible to achieve fairness with a flat rate State Pension without wholesale reform of National Insurance Contributions, particularly the current differences in rates paid by the self-employed and the employed groups of people?
Gregg McClymont MP: Gentleman in the fourth row.
Comron Rowe: From Foot Anstey Solicitors.
Does the panel think that with the benefit of hindsight in 20 years time, we’ll look at the clauses in employment contracts that say you will retire at age 65 in the same way as we now look at the clause in employment contracts for women from the 70’s that said you will leave employment on getting married or having children?
Gregg McClymont MP: Thank you very much. So we’ll take those three questions, will we start with the first question which was put to Ros?
Dr. Ros Altmann: Sure. Thanks Jay for that question and it does go to the heart of much of the reason why we are where we are. I think there has been an awful lot of fear about making any change. This magic 65 age just seems to be ingrained in people’s thinking, indeed it was always thought you should be aiming for earlier retirement and there are lots of reasons that people can give for saying you shouldn’t keep working, but there is no magic age and I think that's what we need to get away from. There's no reason why a woman suddenly becomes in need of being a carer at 65 anymore than there might be at 60 or at 70, it depends on the life of the person involved. And I think we have to get away from these fixed ideas because what we are doing at the moment is completely unsustainable. You know, people are going to be living much longer, not everybody but that's the case now, people don't always live to 60 or 65 now but the majority of us will live longer and longer. What are we going to live on? Who is going to supply the money for people to survive on? It can only be at a very low basic level from the state. We have to change the way we think. Caring commitments are even now being fitted around other work commitments, people can work part time and still care and I think, you know, we can look at what happened, which goes to Comron’s question really, 30/40 years ago when a mum had just had a baby, the first question that somebody asked her would not be when are you going back to work. But nowadays if you have a child, it is normal to talk about going back to work. In the same way as when someone has their 65th birthday in 20 years time, the first question will not necessarily be when are you going to stop working? It might be what are you going to do next or how are you going to cut down but that's completely different. And as to the supply of part time jobs, again, you would have said the same thing then as the answer from a woman 30 years ago would be well how am I going to go back to work? Where am I going to find a part time job that fits in with my life and my children and my school? It will happen, if it does not happen, we are heading for long term economic decline. You know, the demographics are stark, we've got millions of baby boomers coming through, the first one hit 65 this year, millions more coming up. There aren’t enough younger workers behind them to pay a decent pension, the workers themselves, people in their 50’s and 60’s do not have enough private savings to sustain them at a decent level, that means they will start pulling out of the labour force if we don't change, they will not have much money to spend, not be able to create jobs for younger workers, we all lose. So I think it is a social change, a major social change but it's long overdue.
As far as Richard’s question’s concerned about the fairness in State Pensions reform and reforming National Insurance Contributions, we all know that National Insurance is a myth, you know, the contribution principle is a myth. Whether politicians will grasp that nettle, whether things will change, is not up to people like me or you, it's a political decision. We have this myth that you contribute to the National Insurance system and somehow you earn rights to a pension, part of that is why we’re stuck where we’re stuck and it is going to be a big problem in terms of introducing the £140 a week State Pension in the way the Green Paper suggests because current pensioners will not be included and that is going to be an enormous political issue. They will all say, but we've contributed more than our 30 years, we've contributed 50 years and yet we’re getting £100 and the new guys who've only done 30 or whatever, are going to get £140, it is going to be a problem but that's a political issue.
Gregg McClymont MP: Thank you. Would any of the questioners like to come back in on what the panel have said? Okay we will move to further questions. The lady in the fourth row, then the gentleman in the third row, and then the gentleman in the second row.
Jennie Kreser: From Silverman Sherliker Solicitors.
Thank you. As a society in the UK we very much placed emphasis on property ownership and indeed research has been done with people and they have told, what’s your pension scheme, and they have said well it’s my house, and they try to release equity and they depend on that in their old age. As a society we know that younger people are struggling to get on the housing ladder and the level of home ownership is likely to severely decline as we go forward. What effect does the panel think that’s going to have on State provision as more and more people are going to be totally dependent, potentially, putting aside automatic enrolment for one moment, as they no longer have the lifeboat of their house to provide them with some means in retirement? And I’m not even going to get started on the effect on CPI.
Luke Clancy: Engaged Investor magazine.
A question for the Chair really. What confidence can people have today that future Governments won’t repeal the legislation governing universal State Pension and re-introduce means testing?
Alistair McQueen: From Aviva.
Ros, I think you used the phrase the pension problem could be reframed as the pensioners’ problem. I understand what you are saying, but is there a danger there that people on the street think this is just a problem for people approaching the age of 60 and 65 and actually the pension’s problem should be reframed as a young persons’ problem to get them engaged with saving for retirement?
Dr. Ros Altmann: Well Jennie, I think you are right to highlight the issue of property, I mean it is the other big asset that anybody is going to have, you know you have either got a property or a pension, typically, when you come to retirement. Many people have both, but not everybody, about 70% of older people own their own home and it’s not the case that 70% have a private pension. One of the big distortions in our economy at the moment is house prices, there’s no question about that, and that is an intergenerational problem insofar as younger people would need to borrow far too much to get on the housing ladder. Now that suggests to me that house prices are wrong rather than there’s some other problem going on with pensions and retirement saving. But, the reality is people in their 50s coming up for retirement now are not all going to be okay, many of them are not, even if they have a property, and many people will be earmarking their property in case they need care rather than to give them a pension, and we haven’t even talked about the care issue which is the next crisis coming down the track. Because although people don’t have enough for pensions, if push comes to shove and you get old and you haven’t got enough money to live on and your pension isn’t working out, you can be told, as the Government is now telling you, to wait and work longer. If you need care that’s not an option. So there needs to be some consideration of that other pot of money in the house. Retirement income is not all about pensions. Auto enrolment is not going to solve the later life income crisis or the later life needs crisis, it’s just the start of a process and I don’t think we can rely on property any more than we can rely on pension. What we need is to encourage people to look at diversification, you need a spread of assets, a spread of savings, a spread of different forms that you might be able to rely on, including your own human capital and working longer as you get older. The thing here is that our lives are not certain in the way that people used to want to think about it. You can’t be sure that when you get to your 60s it’s all going to be alright and you’ll have a pension waiting for you, it doesn’t happen by magic. So if you haven’t saved and you haven’t got much money, or if your savings - as people in their 50s are now finding haven’t worked out, annuity rates have gone against you, the markets have gone against you, and you don’t have much income to look forward to, you have to think about keeping on working, otherwise you will be very poor and everybody else will be poorer because you’re not producing anything in the economy and you are actually draining money from younger workers. So I think, it’s a bit of a red herring looking at a property as something separate, it’s all part of people’s assets.
And, as far as confidence in Government policy is concerned I think you are going to be taking that one aren’t you Gregg?
So if there is a message for younger people, Alistair, as far as saving for the future is concerned, the message needs to be a clear one which it currently isn’t. The Government will give you a basic minimum, that’s it, you will want more. If you don’t save, you won’t have more. If you don’t keep working you won’t have more, but it’s your choice. The problem at the moment is the State Pension system is so complex nobody knows what they are going to get and nearly half of pensioners would end up on means testing anyway, and that means it’s not necessarily safe to save, especially in a pension, maybe only in an ISA. And I still believe firmly that auto enrolment should allow people the flexibility to come out of the pension saving vehicle at least with their own money. Leave the employers money and the tax relief locked in so that half of the auto enrolment pot will be locked away for the future, but the other half, if you need it, you can get back. That will encourage a lot more people to stay in. I think the opt out rate is going to be different here than it was in other countries because we have a different system altogether.
Gregg McClymont MP: Thank you Ros. Can I just make an observation before I deal with Luke’s question about intergenerational fairness, because although home ownership may well be important to see that in a broader sense, that it should only divide between those with very little assets at all and those with a multiplicity of assets, but I think the intergenerational fairness issue is a genuine one and I am an admirer of David Willetts’ book, The Pinch, I do think there’s somewhat an irony that David Willetts is the Higher Education Minister, because the tuition fees hike is a real issue, I think, in terms of the way in which young people will view their life and their income and what they save. I don’t think the Government has managed to communicate that policy effectively, and I’m not convinced that it can be communicated effectively, given the massive increase in fees and I do think if we are thinking about young people and saving, that is a genuine issue which we have to confront.
Dr. Ros Altmann: Well I think we should be using NEST for young people, to help them pay back their student debt. I think it’s ridiculous that they come into the labour market with thousands of pounds worth of debt, and then they are saving into a vehicle that they won’t be able to touch for decades and in the meantime they carry on with that debt. If we could use and harness the power of the employer contribution to help students pay back their debt before they then move on with the rest of their lives, it will help with all kinds of other things. I think we need to look at policy in a more broad fashion. You know pensions is not the only vehicle, it’s not going to solve everything if we stick everybody into a pension anyway.
Delegate: I think this is probably a question for Ros. Saga, I mean have you perhaps profiled, for want of a better phrase, the client of the future, because picking up on Ian’s comment about his wife and 60 year old nurses, I think if I look at my grandparent’s generation which were definitely working class miners, they were old at 40/45, you know if I look at my parent’s generation, my mother has been lying about her age for years, but you know even well into her 70s she’s happily working and will want to carry on working for as long as possible. You know, I don’t anticipate wanting to sort of, for want of a better phrase, give up water skiing and the likes until I’m 80 type thing, and you know I think the trouble is that we envision the future pensioner as our parents generation or our grandparents generation, not what we will become.
Dr. Ros Altmann: Well excellent question and it really is so very much at the heart of what Saga is doing, you know, what we are seeing is lots and lots more older people, even now in the current generations, being much more active, there are people in their 70s and even in their 80s on activity holidays, going up to Everest base camp, and you know it is really true that the old stereotypes have broken down, the trouble is wider societal attitudes have not changed to keep up with that and there are still differences depending on social class, working background, the kind of career that you had, you know people who have had a heavy manual labour life, which is a decreasing number. We have made the most incredible advances in working practices, you know we should be shouting about it, how fantastic it is, we’ve got health and safety, I know people make fun of it, but actually it has meant that people are much healthier at work, physically able to keep going much longer; medicine is also sustaining people very differently from in the past, it’s just that the pension system and the labour force attitudes and employer attitudes are so far behind reality. So that’s why I really am convinced that going forward, as people realise they are not old at 60 or 65 and actually as people, if they do, pull out of the labour force and think, I haven’t got much money, all these things I want to do and I feel I can do, they either go back to work part-time, or start planning part-time work with their employer once they reach that kind of age. Those are the conversations that people are starting to have, that’s what the guides that I was talking about that Saga has produced, start to help you with, you know with case studies and examples of how to think about either working longer for yourself or keeping your workforce working longer, it is a brilliant news story. If you haven’t got enough money, it’s not the end of the world unless you are not well, but that’s the case now when you are 50 as well. Individual differences are always there, but the majority of people and increasingly so, will be able to do some part-time work, your wife as well, if you can’t lift patients all day long, there are other things that nurses can do that are not so physically demanding. In general, within occupations, there are things that people can do that are less physically taxing. There is also a need for encouraging later life retraining and doing other things, if you have always been a nurse you might want to do something else, there’s no reason why you should think, I can’t do this, I can’t do anything.
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To view the presentation by Dr Ros Altmann to the Westminster Employment Forum, click here.