Pensions credit is a disincentive to saving: minister

Alan Johnson, the new Work and Pensions minister, made a series of climb-downs and U-turns on the Government's pensions policy yesterday, admitting both that the pensions credit had resulted in a disincentive to save, and that its take-up had not been as strong as the Government had hoped.

Alan Johnson, the new Work and Pensions minister, made a series of climb-downs and U-turns on the Government's pensions policy yesterday, admitting both that the pensions credit had resulted in a disincentive to save, and that its take-up had not been as strong as the Government had hoped.

Speaking at an Association of British Insurers conference yesterday, Mr Johnson also announced that the idea of automatically enrolling employees in their company's pension scheme, unless they opt out, was now Government policy.

Until yesterday, this had been only a suggestion mooted in the Department of Work and Pensions' Informed Choice consultation paper. Furthermore, under a European law - the Distance Marketing Directive - so-called "auto-enrolment" in pensions is illegal if done without a signature.

Responding to questions about the pensions credit, Mr Johnson also became the first minister to admit that the system could discourage saving for some people. "I'd be crazy to say that [the pensions credit] does not act as some disincentive to some people," he said.

He added that the problem of pensioner poverty had not been eliminated, because "we still have a take-up problem on pension credit". Mr Johnson's predecessor, Andrew Smith, denied both that pensions credit provided any savings disincentive, or that there had been a problem with its take-up.

Opposition politicians were quick to jump on Mr Johnson's comments. David Willetts, the shadow Work and Pensions minister, said: "It is very odd to have a secretary of state who doesn't share his party's policies. It's a whole new approach to party politics.

"The optimistic interpretation would be that this is the start of a radical change in policy, because the Government has realised it can't carry on like this. But the pessimistic ... interpretation is that once Gordon Brown realises what he's been saying, he'll be reined in."