Introduction

In December 2002, the Labour government announced the formation of the Pensions Commission (DWP, 2002). In 2005, the Commission published comprehensive proposals for pension reform in their second report, A New Pension Settlement for the Twenty-First Century (Pensions Commission, 2005). In a remarkable achievement, the proposals gained broad acceptance from government and opposition parties, trades unions, employer organisations, occupational schemes, the insurance industry, special interest groups and the voluntary sector. In November 2006, the reform packages began to crystallise with the introduction of the first Pensions Bill, described by then Secretary of State for Pensions, John Hutton, as ‘a landmark settlement for future generations’ (DWP press release, 29 November 2006). The Bill uneventfully became law, as the 2007 Pensions Act, securing major reforms to the state system to take effect from 2010. In December 2007, the government published the second Pensions Bill, which will reform the private and occupational pension system, to take effect from 2012. Although this Bill may attract more controversy, there is again substantial political and stakeholder consensus for the broad content. All reforms are incremental to the existing system, yet the reform package has the capability to alter the pension landscape dramatically.

The pension reforms have been designed to address a number of identified problems with the UK pension regime. The state pension system needs to be politically and fiscally sustainable as the population ages and the baby boomers begin to retire. This is a challenge facing all countries, but in the UK the challenge has taken a particular form. First, the state system was designed not to cause rises in taxes or National Insurance contributions as the proportions of older people in the population grew, but this necessarily implies widespread increases in poverty as the population ages. Second, the state pensions provide such low income that without a private pension people risk poverty in later life. Third, there are substantial inequalities in private pension provision along many dimensions, which have resulted in large proportions of disadvantaged older people facing poverty in old age. Fourth, UK policies for poverty prevention in old age focus on means-tested provision targeted at those most in need.