Below is the text of Mr Major’s statement on Basic Pension Plus, made at Downing Street on Wednesday 5th March 1997.
For years we have pursued a strong and consistent policy of encouraging personal ownership by individuals and families.
We believe ownership of savings and assets gives people independence and security. It enables them to provide for themselves and their family. With that self-reliance comes self-respect, and greater freedom of choice.
Over the last eighteen years we have made huge progress in encouraging home ownership. The proportion of home owners across the UK has risen from 54% in 1979 to 67% today.
We have encouraged long-term savings through the introduction of TESSAs and PEPs. 2.5 million people are now owners of PEPs, and 4.5 million holders of TESSA accounts.
We have also encouraged wider share ownership, not least through privatisations. I announced a further development of our policy for employee share ownership a few weeks ago. And with the distribution of shares from converting building societies this spring, share ownership will get another massive boost.
But some of our most fundamental reforms have been in pension provision. In the mid 80s, when I was a Social Security Minister, I helped Norman Fowler create a massive expansion of private pensions, by allowing people rebates of national insurance contributions to invest in a personal pension scheme.
In 1979, funds invested in occupational and personal pensions amounted to 132 billion pounds in today’s money – 25% of GDP. Today that investment amounts to 650 billion pounds, or 95% of GDP – investment that underwrites the pensions of tomorrow.
We have continued to build on those achievements in the 90s. For example, the Pensions Act 1995 fulfilled our manifesto commitment to make personal pensions attractive to people across the age-range, by introducing age-related rebates of national insurance contributions.
Just a few weeks ago, I announced further measures to facilitate group personal pensions, and to give greater flexibility for people with personal pensions who join occupational schemes.
Already, 70% of people retiring do so with an occupational or personal pension in addition to their state pension.
These steps alone will ensure that the proportion of people retiring with funded pensions will continue to grow. If we took no further steps we would expect approaching 90% of people to retire with additional pension income by 2025.
But we have now reached the point where we can go further. Now that funded second pensions are established, growing and secure, the time is right to start progress towards a proper, secure funding of the basic state pension too. My aim is to ensure that all of the younger generation can look forward to the benefits and security of a pension fund built up in their own name.
The proposals we are announcing today will do that, by enabling every young person to accumulate an investment fund that could yield considerably more than their basic state pension entitlement.
They amount to the most fundamental enhancement of the state pension scheme since it was introduced.
At the heart of our proposals is a scheme called Basic Pension Plus.
Firstly, to remove fears and misunderstandings, let me make clear that the state will continue to guarantee that everyone will receive at least their basic state pension, uprated at least for inflation as now. Let me also make clear that the entitlement of the current working generation to the basic pension and SERPS will remain the same. The package is about increasing security in retirement, not threatening it.
What we propose is that the younger generation will have part of their national insurance contribution contributed into a pension fund in their name. A pension fund that they choose, to invest the money on their behalf. This will build up an asset they will own.
When they retire they will receive the full benefit from this fund. Assuming reasonable investment growth, the pension they receive from it – even on the minimum contribution – could be considerably more than the current state pension entitlement. But the state will top-up the income where necessary to guarantee the basic state pension entitlement.
And as Peter will explain in a minute, there will be a further rebate to enable those earning more to provide a second earnings related pension on top of the basic pension.
Gradually, across a generation, this scheme will enable us to switch the financing of our state pensions to savings and investment funded from reductions in NICS rather than taxes and charges. Not only will that benefit the next generation of pensioners, but it will mean that – by the middle of the next century – we will be gradually removing most of the £50 billion cost of pensions that would otherwise be borne by the current taxpayers of that time.
The UK is already better placed than any other major European economy to fund its future pension liabilities. This will put us another huge step ahead – enabling us to sustain a healthy, low tax economy for the future.
It is a reform that reflects the best traditions of this Government’s philosophy. It is dealing with the long-term issues in a far-sighted way. It is reinforcing the security and independence of individuals and families by building up their own assets and resources. It will provide funds for investment in the economy It is prudent with the public finances. And it safeguards peoples’ expectations.
This reform will mean British people will be able to look forward to retirement with even greater confidence. It offers our young people a pensions opportunity unrivalled in the world.