OpinionJun 5 2014

Collective pensions: Lib Dems strike again

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Labour must be spitting following George Osborne’s historic Budget in March. It seems shadow pensions minister Gregg McClymont, Labour MP for Cumbernauld, Kilsyth and Kirkintilloch East, has come up with little in the way of opposition to the coalition’s proposals to give individuals greater responsibility for their finances in retirement.

But rather than attacking what has been widely received as the best news for pensioners in years, Mr McClymont is instead focusing on the provision of pensions guidance, no doubt, peversely hoping that the ongoing consultation on how to deliver this comes up short so he can sing “I told you so”.

Getting pensions guidance right is absolutely critical, but it seems weak that Labour has got tied up in knots over the tailcoats of a policy that is demonstrably and irreversibly associated with a Tory government and Lib Dem pensions minister Steve Webb.

This week we have seen the Conservatives and Liberal Democrats steal a further march on Labour with the proposal to encourage collective defined contribution schemes to allow savers to pool their risk and potentially reap better investment returns.

Whatever the potential technical pros and cons of this approach - echoes of with-profits schemes, the Dutch are thinking about abandoning CDC to move to a more British model, et cetera, et cetera - there is also an interesting political angle to this policy.

Michael Johnson, research fellow at think tank the Centre for Policy Studies, made a valid observation following yesterday’s Queen’s speech, which confirmed both annuity changes and the provision of CDCs.

He said: “Collective DC is a potential source of political capital for the government, albeit that the Conservatives will probably grab more than their fair share from the Liberal Democrats.

“Advocating the collectivisation of risk provides a great opportunity to encroach on what is natural Labour territory. So maybe politics and pensions do mix, after all.”

Good point.

At the same time, James Sproule, chief economist and director of policy at the Institute of Directors, has warned that existing unfunded pension liabilities in the UK are more than likely to result in future governments being forced to renege on pensions promises, leaving individuals carrying the can.

He claims: “Government promises will be rewritten and laws enacted to allow companies to reschedule. The risk is not that companies or governments will be brought down by pensions liabilities, but that promises will simply not be honoured.”

It does not seem too far a stretch to extend this logic further to provision of public sector pensions, payments of which are funded from national insurance contributions from a workforce that is already struggling to support the ever-increasing size of our retired population.

And what about state pension provision in the future? It is a sobering thought.

The question is why Labour has seemingly forgotten its voter heartland in the midst of all of this.

Demolishing pensions restrictions for those who want to have financial control over their destinies has a distinctly capitalist and Conservative ring to it; abandoning individuals to suffer the potential gains or losses on offer at the mercy of the markets, with minimal state protection, is also distinctly resonant of a harder right Conservative ideology than we are currently witnessing within the coalition.

Keeping the pressure up on government to deliver independent and sufficient pensions guidance to support increased freedom to spend retirement savings at will is a valuable endeavour, and Labour is right to pursue it.

But rather than attack the technical specifics of Tory policy ideas, including CDC and how it might not work, it would be, in my humble opinion, more interesting to see what Labour would posit in its place. Or indeed how it might build on it to protect the interests of future British generations which are so clearly at stake.

Solid policy proposals that return to and chime with traditional Labour values of supporting society more broadly, including those not able to support themselves, would add some much needed ideological space between the parties.

In a country that is increasingly stuck in the political middle, where disillusioned voters are registering their frustrations and rejection of this bureaucratic middle ground by voting for parties that set out their stalls definitively and on the outer edges of ideology, we are in desperate need of politicians and policy that give people a real choice between two or more distinct and different futures.