Welcome to the Pensions Reform Group

"The Universal Protected Pension we put forward is the only workable scheme that guarantees to break the link between retirement and poverty" - Chair of the Pensions Reform Group, Rt. Hon. Frank Field MP.

The Pensions Reform Group was established in 1999 with membership drawn from politics, industry, academia, voluntary bodies, and other stakeholder groups. Our joint endeavour is to begin a serious and detailed debate on banishing pensioner poverty from our shores.

Latest News & Updates

Monday, 24 April, 2006

The Third Way to Long-Term Pensions Reform

The Pensions Reform Group (PRG) will present today its alternative to financing reform of the basic state pension in a meeting with the Prime Minister. The Pensions Commission promises a tax led reform. The PRG proposes an investment financed reform. In a submission to the Prime Minister the PRG argues that this is The Chance of a Lifetime to get a major investment led pension reform through and on to the statute book.

The Chance of a Lifetime has been created by the success of the Chancellor's Pension Credit strategy concentrating help on the poorest pensioners. For the first time ever long term reform can be enacted and not thwarted by political pressures demanding help for the poorest pensioners.

The Chance of a Lifetime argues that the crucial decision the Government has to make is on getting the structure and governance of future pensions right. The contribution rate to finance the reform can be settled when the Chancellor thinks it prudent to do so and when voters have had a chance to see the new scheme in operation and judge the independence of its governance arrangements.

In these two crucial respects the PRG proposals meet the Chancellor's demands that reforms should be both affordable and increase public trust. The PRG proposes:

* The basic state pension will continue to increase in line with prices during a person's working life;

* At retirement a Universal Protected Pension (UPP), valued at between 25 per cent and 30 per cent of national average earnings, is paid and this sum is made up from the basic state pension and a new funded pension. In today's prices the total pension would be worth £130 a week compared to the £82.05 paid up to April 2006;

* Both parts of this Universal Protected Pension will be indexed in line with earnings.

The PRG proposes to finance this investment led pensions reform by redirecting what is called the national insurance rebate into the new fund. Not everybody draws the rebate. But of those who do, the rebate alone, invested over a person's working life, together with the state pension, will meet the minimum targets of £130 a week in today's money. Additional contributions will be required to index the pension to national average earnings. These additional contributions come in between a 1.5 to a 2.9 points increase in national insurance contributions.

While affordability is crucial, so too is trust. Will the Pensions Commission's reforms based on tax increases last? Or do the PRG's reforms based on using the additional contributions to build up a raft of investments to pay future pension increases hold out a greater possibility of repelling political interference?

The critical question concerning financing state pensions reform is this: is there a better chance the investments in real assets (as proposed by the PRG) will be better protected from political cuts than reliance on pay-as-you-go financing (as proposed by the Pensions Commission)?

To safeguard the investments PRG proposes a governance structure based on the Monetary Policy Committee of the Bank of England. UPP would be guarded by a set of governors appointed by the Government who would be housed at the Bank and would:

* Reflecting the long term nature of the problem, be appointed for long periods of approximately 15 years as are the governors of the Federal Reserve, with these appointments being staggered over time;

* Have the duty set in legislation to run the UPP delivering a pension between 25 and 30 per cent of average earnings;

* Have a fiduciary duty placed upon each of them.

The PRG proposal builds on rather than disrupts the Chancellor's pension strategy. It capitalises on the opportunity for long-term investment led reform which has been created by the success of pension credit redirecting more resources to the poorest pensioners than any other move since 1948. It keeps a price indexation to the state retirement pension only indexing it to earnings after retirement and as part of the new Universal Protected Pension. Similarly it calls for a hypothecated national insurance increase to finance fully the reform along the lines of the hypothecated contribution ear-marked for NHS reform. Above all it develops further Labour's most important constitutional reform in establishing the Independent Monetary Policy Committee as a form of governance for the new funded pension arrangements.

For more information, and to read a copy of the PRG paper 'The Chance of a Lifetime', please follow the link to the Reports and Publication page of this website.