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4 October 2013
As Lord John Hutton wrote in 2010 the “challenges that lie ahead as we transition to becoming an ageing society are real and obvious. There is no status quo to dig and defend. Steady as you go will not get us through. Change will be the order of the day. But neither are the challenges insurmountable.” Given this need for, and the challenges of, change Reform held a series of roundtables on “New thinking on the welfare state” at the recent Liberal Democrat, Labour and Conservative party conferences. These roundtables were sponsored by the Association of British Insurers and held under the Chatham House rule.
The series began with a discussion with Steve Webb MP at the Liberal Democrat conference in Glasgow. This discussion highlighted the importance of financial advice. Important structural changes mean it is becoming more, not less, difficult for people to make the most of their financial and housing assets at retirement. Increasing longevity means that people are likely to spend longer in retirement, greater numbers of people are entering retirement with both younger and older dependents and there is a growing issue of people entering retirement with debt.
This all means that retirees will increasingly need to understand and manage financial products’ risks, with the end result that pension choice will become more important. This also requires careful thinking on the market for a broader suite of options, such as equity release and downsizing.
The Labour event in Brighton with Rt Hon Anne McGuire MP showed why new thinking on the welfare state is essential. Demographic changes and the associated fiscal outlook will make it harder for the state benefit system to provide support to people during periods of need. Yet addressing need will remain as important as ever (if not more so) and government, employers and the financial services industry must work together to help ensure families have access to the right levels and types of financial protection and support.
While recent years have seen many good examples of government and industry working together to help close the protection gap, the discussion also showed where further work could be useful. Addressing poverty among disabled people remains a key challenge. Trust in financial products could also be strengthened and the focus must not be on simply selling a product but on playing a role in a mixed economy of support. In this respect the potential for financial services to help encourage a greater focus on preventing problems from arising in the first place appears especially important.
Finally, the discussions with Lord Freud at the Conservative Party conference highlighted how welfare reform is not just a technical exercise but can play a major role in shaping culture too. Indeed, one important consequence of the Universal Credit has been to encourage social landlords to play more of a role in helping address harmful lifestyles. But this should just be the beginning and groups like employers and the financial services industry can play a valuable role too.
Yet this does raise several challenges. There is concern that some employers need to do more to support their workers and that products like income protection may not work further down the income scale. But these problems can be beaten. Group risk policies can, for example, make products like income protection a viable option for workers throughout organisations, not just management.
However, challenges like the interaction of these products with means-testing, including with the Universal Credit, remain. And there was a view that more could be done to ensure that policy in areas like equity release is coordinated across agencies and further thinking is needed on the interaction between employment and skills.
Overall the three discussions highlighted how much we need new thinking on the welfare state. But they showed how much opportunity there is too. Open and honest debates like those at the party conferences can help move policy onto a better footing. This would safeguard important programmes, encourage more families to prepare for their own futures, increase levels of saving and insurance and, eventually, lower burdens on the taxpayer.
Blog by Dr Patrick Nolan on new thinking on the welfare state.