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.
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.
However, some 700,000 more pensioners would be living in poverty by 2050 if the triple lock was scrapped, according to research from the Pensions Policy Institute (PPI).
The think tanks pointed out there was clear disagreement on increases to the state pension age between Labour and Conservatives, "but scope for building consensus on new flexibilities when approaching the pension age".
Another area of contention is the pension freedoms reform, introduced in 2015, as Labour is suspicions of this initiative, according to the authors.
Nevertheless, the party has chosen "not to oppose the policy directly", they wrote.
Mr Harrop and Mr Shorthouse stated: "The Conservatives have accepted some regulation to prevent abuses of the new system but their priority now is to promote active decision making and product innovation.
"Labour will emphasise regulated pathways and are likely to press for these to give unengaged savers the option of a secure lifetime income."
In April, the Work and Pensions select committee called for a new form of standardised drawdown to protect pension savers, with calls for providers to be forced to offer the product.
Last, but not least, there is space for consensus on collective defined contribution (CDC) schemes, which the government is introducing in response to emerging employer interest, led by Royal Mail.
CDC schemes differ from defined benefit pensions in the sense that they do not guarantee certain incomes in retirement.
Instead, CDCs have a target amount they will pay out, based on a long term, mixed risk investment plan.
These schemes also differ from the traditional defined contribution plans, since they do not produce individual pension pots. Instead they invest savings in a larger collective pot, which provides an income to individuals during their retirement.
“Labour is going to champion this model as an alternative to the new individualised pension world,” the paper concluded.
According to Malcolm McLean, senior consultant at Barnett Waddingham, the paper seems to be “an accurate summary of the state of play on recent pension policy developments and where the main political parties stand on the case for further reforms going forward”.
He said: “As the paper indicates there are still quite a few areas of disagreement on the way forward in a number of important respects, notably increases in state pension ages and the cost of the triple lock.
“Pension tax reliefs and allowances are another area where it would be helpful if before major changes were to be introduced a political consensus was obtained before being implemented.
“The last thing the pension saver needs is frequent switches of direction or U-turns whenever there is a change of government. Planning a pension is a long-term operation and people need stability in direction and political stability to assist in the process.”
maria.espadinha@ft.com
