State PensionNov 21 2019

Providers warn of Labour's 'gargantuan' pension plans

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Providers warn of Labour's 'gargantuan' pension plans

State pension age has been set at 65 for men since 1925, and was equalised for women in November 2018.

Under current plans the state pension age for both men and women will start to increase to reach 66 by October 2020 and to reach 67 by 2028.

As part of its manifesto, published today (November 21), Labour pledged to leave the state pension at 66 and not to increase it in the future. It would also review it for physically demanding jobs.

It also promised to maintain the triple lock, ensuring the state pension continues to increase each year in line with the highest of inflation, earnings or 2.5 per cent.

But many pension providers have called out the party after it failed to mention the impact this policy would have on taxpayers in its costings document.

Tom Selby, senior analyst at AJ Bell said freezing the state pension age at 66 was a “gargantuan promise” from Labour which would have “enormous ramifications” for those affected, society as a whole and long-term government spending.

Mr Selby said: “It is incredible that the impact this will have on taxpayers doesn’t appear in the policy costings. 

“This may simply be because planned increases in the state pension age run beyond the next Parliament, but such a short-term approach to something as vital to the long-term future of the UK as state pension reform is hardly encouraging.”

Steven Cameron, pensions director at Aegon agreed the changes would come at a heavy cost to taxpayers.

Mr Cameron said: “Labour is currently leading the charge in terms of the generosity of state pension commitments. 

“Keeping the state pension age at 66, cancelling the planned increase to age 67 and considering allowing earlier access to those in physically arduous or stressful occupations will be welcomed by those concerned over their ability to keep working longer and who lack sufficient workplace or private pensions to allow them to choose to retire before state pension age.

“Generosity to state pensioners does of course come at a cost, particularly as the UK continues to enjoy longer lives.

“There is no ‘fund’ to pay state pensions, with today’s state pensions being ‘paid as you go’ from National Insurance contributions from today’s workers who will face an increasing burden.”  

This state pension age freeze has also been criticised for not taking life expectancy into account which further increases the burden on working people.

Further pensions policies also included a pledge to work with Waspi women — women born in the 1950s who were the first to be affected by a sharp rise in the state pension age — to design a system of recompense for the “losses and insecurity” they had suffered.

Jon Greer, head of retirement policy at Quilter, said Labour’s pledges on pensions were “out of step with demographic changes” happening in the country.

Mr Greer said: “Given the rises in life expectancy, the cost of the state pension is only going to go one way, increasing the burden on the deceasing number of working age people. 

“Coupled with the promise to work with the Waspi women to find a solution to their issues, the provisions that will need to be set aside to fund pensioners will be significant and challenge the policy objective for responding to increased life expectancy.

“But it remains to be seen how Labour will account for the costs associated with these policies whilst delivering an affordable state pension system.”

Mr Selby added: “It’s also important to remember that planned state pension age increases to 67 and 68 are not just based on the last few years’ data, but decades of life expectancy improvements.

“The increase in the state pension age to 66 currently underway is the first increase since the Second World War, during a period when life expectancy across the UK has risen at unprecedented levels. 

“If state pension increases are to be permanently shelved, Labour needs to explain who will pay the extra cost in the long-term.”

The manifesto also included a pledge for a publicly owned pensions dashboard.

The dashboard will ensure people throughout the UK have easy access to key information about what pensions they have, who manages them and what they are worth.

But providers have voiced their disdain for a single publicly owned dashboard rather than a multitude of commercial dashboards, as proposed by the last government.

Mr Cameron said: “Labour’s intention to create a single publicly run pensions dashboard rather than the current government’s support for a range of commercially run dashboards will restrict the private sector’s ability to offer this service to its customers. This could be seen as a nudge towards nationalisation.”

Mr Selby said there “is no reason to limit the ambition of dashboards to a single service”.

Paul Waters, partner at Hymans Robertson, said: "Enabling financial services providers to access the data and build it into their propositions will be key to drive the innovation and products needed by consumers. 

“If we move to a single non-commercial dashboard and also prevent the use of the output by third parties it will massively reduce the ultimate benefit to consumers.”

amy.austin@ft.com

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