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COLIN BRAZIER: Now the Chancellor, George Osborne, claimed this week’s budget was for the makers, the doers and the savers but with the biggest pension shake-up in decades it seems to also be for the spenders, people who want to cash in their pension pots will be free to do so if they choose so would they perhaps consider blowing it on a Lamborghini, as some newspaper columnists have suggested.  In a moment I’ll be speaking to the Work and Pensions Secretary, Iain Duncan Smith and later in the programme I’ll speak to his opposite number too from Labour, Rachel Reeves.  Let’s bring in Iain Duncan Smith then now if we can, the Secretary of State for Work and Pensions who is in Milton Keynes.  A very good morning to you.  On pensions, can we trust the public who have been given this new freedom to be prudent rather than profligate?

IAIN DUNCAN SMITH: I believe we can. Let’s put this in context, I think this budget will go down as one of the great budgets, it signalled a new departure for Britain economically and for people who have actually tried hard, they get rewarded and here’s how it works.  The reality is that over the last four years myself and my Pensions Minister from the Liberal Democrats, Steve Webb, and the Chancellor and Danny Alexander have worked on three big major reforms to pensions.  The first is we’ve started automatic enrolment so now people save when they go into the workplace, now three million are on and we’ll end up with about ten million on and that’s the first time putting a floor under savings.  The second thing we’ve done is we’re going to introduce and are just about to start the single tier pension which gives people who have had 35 years of contributions a floor so that they’ll always be above the means test and so in other words everything they save will actually be theirs to use rather than be means tested away and so this final reform that the Chancellor has brought in, that of getting rid of the requirement to get rid of an annuity, works because whatever happens to people, they won’t fall below the means test.  The reality is with 35 years’ worth of savings they’ll be above the means test so they shouldn’t cost the state any more money but the key thing is, this is about saying to people who are too often trapped in annuities which have very poor returns, you know the last government crashed the economy and interest rates were low because of the huge amount of money being pumped into the economy, so if you took an annuity out in this period of the last three years you’ll have found you were locked in to recession levels of interest rates which is not fair so getting rid of this is about trusting people, giving them real security in their future and allowing them to see that what they actually save for can be used in the best way that they think, so trusting people to use their money and giving them that security is what this is all about.

CB: Do you accept though that there will be a small minority of people who will look at this pension pot that they can suddenly liberate and use and blow if they want to on a flash car, a cruise or whatever it is, they will simply find that temptation irresistible and an annuity in a sense provides a discipline that stops that happening and for a minority of people they will get into some trouble?

IAIN DUNCAN SMITH:  Well let’s be clear about this, why would somebody who has made all the effort over the years putting money aside both in terms of their paying of national insurance and saving on top of that for a retirement income, why would they suddenly want to go out and just behave irresponsibly, having behaved responsibly all their lives, planning for their future, giving themselves security, why do we think that the state who has arguably historically been the most profligate of all people with money, not ordinary people but the state has misused taxpayers money for generations so why would we say that those people would actually go out and blow their money on something?  No, I don't think so, I think what they’ll do is they’ll try and find new areas, new vehicles for them to invest their money in that will give them a better return than they’d be getting with their annuities.  We’ll be putting in this incredibly strong base of free advice, we’re committed to that completely and we’re getting out there to check with everybody and sorting that out and all the various organisations to get that right so no, I don't think that, I think what will happen is that people will realise we are now trusting them – and by the way we’re about the only country out there that doesn’t do this in the OECD of any of the major nations, so we trust them to secure their future having made all that effort themselves.  No, George Osborne in this budget made it very clear that we trust people and what’s happened on the other side with Labour’s carping and moaning and complaining is that they actually don’t trust people, they all think the government spends your money better.

CB: You say they are carping and moaning but they’re not, they have agreed with it. 

IAIN DUNCAN SMITH: They have to have it dragged out of them and here’s the thing.  If I were any person just listening to this, it took them three days to finally come round to saying they were in favour.  People like  Tom Watson and others, the debate inside the Labour party is furious at the moment.  Why?  Because honestly the beating heart of Labour does not trust people with their own money and that’s why they’re struggling over this. 

CB: We’ll talk to your Shadow in about an hour’s time and we’ll see what she’s got to say about it and I will put to her what Tom Watson and others have been saying on Labour’s back benches, you are right, there has been some grumbling but they have digested a complicated set of proposals three days later, it sounds a long time in the world of politics but you could argue that actually they needed that time to really work out what was going on.  You say people will try and find new investments, to do that they need to guided, they’ll need to be advised, we will need an army of new financial advisors lest we are left with hucksters and scammers who will see in these reforms a fantastic opportunity to con people.

IAIN DUNCAN SMITH: Well let’s be absolutely clear about this, the main thing the Chancellor announced alongside allowing people to do what they like with their money and not have to take annuities was this base of advice that will be for free.  He’s consulting on it, we’ve said we’ll get the best that it’s possible to get and the truth is, for the financial markets what’s happened under annuities has been already a problem.  People have often when they’ve got to retirement have not shopped around because it’s been altogether too difficult for them to do so, the result is that those providing annuities have not always provided the best deal, they have often put charges in there which were not fair and so the best way, instead of trying to limit those charges is to say to them look, you have to now compete with others, you have to openly offer a better deal and that deal will be scrutinised by an independent body, they will allow advice to go to people so that they get a much better idea than they would at the moment.  The honest truth is, you said earlier on that the Labour party took time to come, no, no, there’s a principle here, a very simple principle and actually I have believed in this for years.  You have to trust people with their money and what we have succeeded in doing by putting the single tier in was to make it clear that it is now possible, you could never have done this under the pensions system we inherited under the last government which was a terrible mess and penalised savers.

CB: Do you have any sympathy with those people perhaps who have just purchased an annuity and let me extend it if I can to companies who in some instances whose lifeblood is in selling and managing annuities and we’ve seen some dramatic share price falls there, do you have any sympathy in that direction?

IAIN DUNCAN SMITH: Well of course you’d love to be able to do this absolutely for everybody and there wouldn’t be a problem but of course there are limits to what government can do in this extent so what the Chancellor has made clear is to give people a strong signal who are approaching retirement and those who haven’t taken out annuities yet that when this legislation is through we will free them to make their own choices so there are always difficult choices you make in government but we can only do this, by the way, because at the end of the day we’ve stuck to our long-term economic plan which means we are actually making savings in the welfare budget and others that allow us to cover the cost of things like this advice process whereas right now Labour is pretty much going to overturn most of our welfare reforms and I don’t see how they are going to be able to pay for anything that they planned to do because the costs are going to be enormous if they get into power, on taxpayers for the most part.

CB: They say the road to hell is paved with good intentions don’t they and it’s always very difficult to know what the unforeseen consequences of complicated financial change will be but it is suggested that one thing that may happen here is that pensioners who can now look at their pension pot and invest it where they feel fit will put a lot of it into the property market, they’ll buy to let properties, they’ll do it on behalf of their children or their grandchildren and that’s already going to add fuel to the fire of a raging housing market.  That is a real possibility.

IAIN DUNCAN SMITH: Look, I’m not going to speculate on what somebody who approaches retirement and would normally have to take an annuity out and now doesn’t have to do, will have to do with their money.  What I am almost certain of is that that individual will want to secure an income for themselves and their families that allows them to have a good and reasonable retirement, after all having saved for that for a number of years they are hardly likely to want to speculate anywhere and as I said earlier on, now with the single tier pension it means that whatever they do they’re not going to fall back into the means test so the key point here is that the existing reforms we have already made will help them make what I call informed choices but you know, the annuities market has not been a good deal for them.  Everybody know that, too many of them have paid too much in charges and at the same time they have not had a very good return because, as I said, the last government crashed the economy and made it impossible for interest rates to remain at a higher level so the reality for us is to say to people very simply this message – we believe that you who have put money aside all these years do not need government forcing you to do something that penalises you.  We trust you to be responsible because you have been responsible all your lives because you have saved so you will secure your future better than any government that has a terrible record in looking after your money so I think people are better than the government is about securing their futures and it’s all about security for them in their old age and security and hope for their families.

CB: Let’s just move on if we can to another area of the budget that concerns your department, Secretary of State, that is this welfare cap for the financial year 2015/16, the Chancellor capping welfare spending at £119 billion and that doesn’t include the state pension which is by far and away the lion’s share of the welfare spend.  Without that component you could argue it is a meaningless exercise.

IAIN DUNCAN SMITH: Well no, it’s not meaningless, this is again one of the big things that the budget has come out with and I am fully supportive of this.  As I said, I think the Chancellor will go down in history as one of the great Chancellors and also this budget.  Why?  Because it has freed people up to make choices about their retirement money because they tried hard, worked hard and got their savings in and on this side of it, it is saying to tax payers that there is a limit to how much we can afford to pay in welfare payments and if, as the incoming government will want to do, to make choices about this, they will have to come to the House of Commons, to the public, rather than hide and squirrel these things away in secret, they will have to say these are our choices.  In other words, if we want to spend more on welfare payments, as I say excluding pensions, then we’ll have to say what we will save within that overall total for welfare and that at last puts the debate on a proper footing.  At the moment the opposition has opposed every single savings measure that we’ve introduced, some 50 billion cumulatively in this parliament and they now say, as I saw Rachel Reeves say the other, they would like to reverse all of our welfare payments – we have it on the record, she even said at one stage that she opposes everything so my real point here is if you want to do that, if a Labour party that might I hope not get into government, wants to do it they have to say what they would actually save elsewhere or they will breach the cap.  At last the public, taxpayers, people who tried hard paying their taxes to help people, will see what the value of this is and understand what governments really intend to do so it’s a good move.

CB: Just briefly, you’ve had some good news in today’s newspapers haven’t you, the polls suggesting that you are virtually level pegging now with Labour.  There has been it seems a budget bounce as well so that makes it that bit more likely that you, the Tories, will be in government post-2015.  Do you feel perhaps, should he Conservatives win an overall majority, that your job at welfare is finished, that you’d like to carry on that role given not least some well documented if potentially inaccurate reports of spats between yourself and George Osborne?

IAIN DUNCAN SMITH: First of all, to be quite frank, George Osborne and I get on very well, we work very well together.  Look at this budget for example, pensions, a lot of the savings measures, we’ve consulted carefully together and I agree with absolutely everything going in so I wouldn’t believe all the tittle-tattle that you hear.  The truth is that I’m here to do a job, the Prime Minister asked me to do it, to reform welfare.  I believe welfare, working age welfare and pensions, we will have done more in five years to bring these under control but also to make two big messages, to ensure that people who work, who try, will have their taxes protected and they won’t be paying huge sums of money all the time for a bloated welfare budget that rose by 60% under the last government but at the same time we will help make work pay through universal credit and the other changes, we will make sure that people get the rewards that they need and get the support they need when they have that moment when they are out of work or unemployed and on the other side, on pensions, we will make savings pay so making work pay, making savings pay, we will have done more to reform the welfare and pensions budget than any other government.   I will be proud of that, we will have done it as a coalition working closely together with George Osborne, myself, Danny Alexander, Steve Webb.  I think we can be proud of what we have delivered to get ourselves out of the mess of what the last government left us when they crashed the economy.

CB: Secretary of State, we appreciate you turning up on this Sunday morning, thank you very much indeed, Iain Duncan Smith there.