Pensions  

Cross-party thinking on future pension reform revealed

Cross-party thinking on future pension reform revealed

Despite philosophical and policy differences, there is room for cross-party consensus to achieve necessary reforms in pensions, according to two think tanks.

Bright Blue and the Fabian Society, two think tanks representing the intellectual right and left, published a paper this week, in which they outlined where Conservative and Labour party politicians and policymakers agreed and disagreed on pension policy.

The paper pointed to "impressive cross-party consensus on pensions policy" over the past 15 years but said further reforms were required to ensure more people have sufficient resources for retirement.

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Consensus continued? examines political thinking on pensions policy in five key areas: auto-enrolment; support for the self-employed; tax relief on private pensions; the state pension; and pension freedoms.

The authors, Andrew Harrop, general secretary of the Fabian Society, and Ryan Shorthouse, founder and director of Bright Blue and a former Conservative party policy adviser, said one of the main areas of continued cross-party support was auto-enrolment, including the extensions recently announced by the Conservative government for implementation in the 2020s.

The Department for Work and Pensions (DWP) announced in December it was making changes to the age for auto-enrolment of workers into workplace pension schemes from 22 to 18-years-old, and changing the way pension contributions are calculated.

Currently, the minimum total contribution is 5 per cent, with the employee paying 3 per cent. In April 2019 this will increase to 8 per cent, with the worker paying 5 per cent.

The paper highlighted both parties "would like to see higher contribution rates over time, and while they may disagree about the pace of change there is scope for consensus building".

On self-employed, the think tanks said both parties were attracted to the idea of auto-enrolment in principle, but there were "political obstacles" to developing an HMRC-based system, with the Conservatives keen to test "less-statist options" first.

In its auto-enrolment review, the government said it would test a number of approaches to identify options for self-employed people that can work at scale.

The possibility of a flat-rate pensions tax relief is also on the table again, with many Labour and Conservative politicians supporting the idea, the paper stated.

According to data from HMRC, the overall cost of pension tax relief stood at £38.6bn in 2016 to 2017.

Mr Harrop and Mr Shorthouse wrote: "Chancellor George Osborne considered this reform but it is not a current priority for HM Treasury.

"The cost of tax relief is rising, however, so the case for change may come sooner rather than later."

On state pension, both parties support the new design introduced in 2016, but would "ideally abandon the ‘triple lock’ and replace it with earnings indexation if this could be done without political fallout," according to the paper.

Under the current triple lock system, the state pension increases each year in line with whichever is the highest: consumer price inflation (CPI), average earnings growth, or 2.5 per cent.