Introduction

Pension reform is rarely off the political agenda, despite the fact that by their very nature pensions require planning and stability over a longer period than the normal life of a government. The publication by New Labour in December 1998 of the Green Paper A new contract for welfare: Partnership in pensions (DSS, 1998) marked an attempt to forge a new and enduring settlement for the provision of income in retirement to carry Britain through the 21st century. However, we argue in this chapter that the reforms proposed have fallen short of those required, and any consensus that had been created has been quick to disperse. The government itself implicitly acknowledged this failure by introducing a new layer of reforms before the Green Paper itself had been fully legislated. These include revised levels of the minimum income guarantee, the pension credit and the new savings gateways. The delayed legislation for the state second pension, the relatively slow take-up of the new stakeholder pensions at the company level, and the collapse of Equitable Life and subsequent public concerns over private pension schemes all mean that pension reform continues to be firmly on the agenda. In December 2002, a new pensions Green Paper Simplicity, security and choice: Working and saving for retirement (DWP, 2002a) was published – just four years on from Partnership in pensions.

By way of background, this chapter first examines the challenges facing policy-makers at the start of the 21st century; challenges arising from the demographic, economic and policy legacy of the last century. The chapter then puts forward a number of criteria that we believe are necessary for a sustainable and effective pension system. New Labour's 1998 pension settlement is then evaluated against these criteria and the extent to which the settlement will indeed deliver an adequate income in later life for both today's and tomorrow's pensioners is assessed. Finally, an alternative option for pension provision is considered.

Pension challenges: the demographic, economic and policy legacy of the 20th century

Policy makers within the pensions field face a number of challenges that are the result of changes during the 20th century: changes in the demographic structure of the UK; changes in the pattern of working life; and the legacy of changes in the balance of pension provision due to policy shifts in the last 30 years.