For the UK to return to sustainable growth, we need a renewed focus on the long term. That means the Government, businesses and people must take bold, visionary action now to address the problems we expect to face in the future.
We need a credible long-term industrial strategy to ensure British businesses are world leaders in areas of strength, and competitive in areas of weakness. We need a long-term vision for rebalancing the economy towards exports and business investment. And we need a long-term approach to education to raise both standards and ambition for all our young people.
Few challenges are more pressing, though, than finding ways to care for our ageing population. We are living longer, healthier lives – but this good news brings costs we must all take responsibility for bearing.
The UK is sitting on a demographic ticking time bomb. Birth rates have fallen by almost 30% over the past 40 years. Those born in the 21st century can now expect to live 30 years longer than someone born a century ago. Compared to today, the number of people over 65 will be half as many again in 2030, and will have doubled by 2060.
And today, 13.5 million people are not saving in any form of pension. The implications for society, for taxpayers and for the economy are huge. If we do not save more for our retirements, the burden will fall on the state, adding to businesses’ future tax burden and limiting our ability to compete in the long term.
There are three possible ways to deal with this challenge: get people to save more, extend working lives, or reduce pension benefits. The last one is an unpalatable option, so the solution must come from a mix of the first two.
Lord Turner’s Pensions Commission recognised this when it first reported eight years ago this month. Their main recommendation was to harness employees’ inertia by automatically signing them up for pension saving, with a minimum contribution of 5% of some of their earnings, topped up by a 3% contribution from their employer.
So tomorrow marks a new dawn for pension saving as auto-enrolment finally starts to be phased in. Over the next six years, every employer will have a legal duty to automatically enrol certain workers into a qualifying workplace pension scheme and make contributions towards it. Phasing in – which business fought long and hard for – will ensure it remains affordable for people and companies in tough times.
With the number of pension savers dwindling since the 50s, auto-enrolment is the right way to reverse the tide and start to rebuild a culture of saving. With the long term in mind, the business community – which currently contributes at least £36 billion to employees’ pensions every year – is committed to helping employees achieve a good income in retirement. And auto-enrolment will encourage savers to think long term about their finances to achieve this goal.
For businesses, this is an opportunity to reassess reward packages and design the best solution with your employees.
For savers who are new to pensions, this is a chance to take stock of personal finances and work out what kind of retirement you might want and how much money you will need to pay for it.
But business is clear: to prevent long-term fiscal gloom we must raise savings levels and must work longer. Our future economic success depends on it.