Government policy towards pensions has been parked in the long grass since the spring.
But at some stage, sooner rather than later I would hope, pensions need to be put back on the political agenda. They simply cannot be sidelined forever.
It was George Osborne, now banished to the Conservative hinterlands, who decided that much-needed pensions reform should be shelved.
Earlier in 2016, during the run up to the Budget, we eagerly waited for him to pronounce on his desired path of pensions travel following a Treasury consultation on the way forward.
Would he get rid of tax relief? Would he turn the long-term savings market into one firmly based on Isas? We were warned to expect dramatic change.
Alas, there was nothing of the sort. Fearing a backlash from the middle classes – and with the outcome of the Brexit vote very much on his mind – he decided that procrastination was the best path to tread.
The weekend before his Budget, he confirmed that pension tax relief would remain intact after all, much to the relief (pun intended) of many higher-rate taxpayers.
Having now thrown off her ministerial shackles, Baroness Altmann has let rip with an air of authority few other pension experts possessWhat good did it do him? What good did it do for support of his ‘remain’ campaign? What good did it do to maintain confidence in the pensions system? None at all.
As a result, all we got for policy reform from Osborne in his farewell Budget – other than initiatives already in train (a shameful cutting back of the lifetime allowance and a reduction in the annual contribution allowance for additional rate taxpayers) – was the intended launch of the lifetime Isa.
Of course, post Brexit vote, there are key issues government ministers need to address as a matter of urgency – a fragile economy to keep from the doors of recession, a cohesive energy policy that will keep the country’s lights burning and our preferred (least disruptive) exit route out of Europe. But pensions cannot be ignored forever. At some stage, the ruptured pensions system needs to be tackled.
Former pensions minister Baroness Ros Altmann – very much mute during her time inside government – seems to think so. Having now thrown off her ministerial shackles, Baroness Altmann has let rip with an air of authority few other pension experts possess.
Fairness for all
Baroness Altmann has let rip with an air of authority few other pension experts possess. Within days of being liberated from ministerial responsibility, she has called for a raft of reforms.
These include an ending in the near future to the triple lock pensions guarantee on affordability grounds; greater fairness in the way changes to the state pension retirement age are being introduced; and an overhaul of the tax relief system (that Mr Osborne sidelined) so higher-rate taxpayers do not continue to enjoy more than their fair share of the pickings on offer. Greater fairness for the majority.
I am four square behind her on most of these issues, but I do not agree with everything she says on pensions. For example, Baroness Altmann has also backed further reform of the private sector defined benefit (DB) pensions system, so employers can reduce the cost of providing these pensions to loyal workers.
Baroness Altmann has let rip with an air of authority few other pension experts possess.Legislation
Legislation later this year could pave the way for employers to link employee pension increases to the Consumer Prices Index (CPI), not the Retail Prices Index (RPI). According to Hargreaves Lansdown, a saver with a final salary pension worth £10,000 a year would see retirement income reduced by £104,000 over 25 years if such a move were allowed (CPI rises more slowly than RPI).
Baroness Altmann believes such a change is necessary. “In an ideal world everyone would get every penny from their final salary pensions and I want people to get as much pension as possible’” she says. “But it is unlikely to be affordable.
Some schemes are offering incredibly generous benefits that no one would have believed would have cost so much when the schemes were set up.”
I think Altmann is barking up the wrong tree. Even if such a threat is carried out, it cannot be allowed to apply to pension rights and entitlements built up by employees. Surely, only on rights that accumulate post legislation.
On a broader level why is it always workers that ultimately pay for the inadequate funding of employer sponsored pension schemes?
Why are companies allowed to continue to pay inflation-busting dividend increases to shareholders while starving the company pension scheme of adequate nourishment?
Why are companies allowed to run schemes with ever rising deficits without admonishment from The Pensions Regulator? But we need more effective – pensioner-friendly –and robust regulation of the DB system. Not a dumbing down of the pension benefits workers have worked hard for (often giving their loyalty to one employer only).
There are other pension issues that need to be tackled – for example where we go from here on auto-enrolment; and how we tackle the ugly rise in pension fraud triggered by the new pension freedoms. Yes it is obvious. Pensions need to rise up the political agenda. The sooner the better.
Jeff Prestridge is personal finance editor of the Mail on Sunday
