Full separation is impractical and improbable
“Too often governments think only of the short term when they make decisions about pensions” said Joanne Segars. She was speaking at the National Association of Pension Funds’ annual conference, calling for more separation between pensions and politics.
Cynics argue that separating pensions from politics is impossible, but Segars is more hopeful.
She cites the Monetary Policy Committee, the Low Pay Commission and the Office for Budget Responsibility (OBR), as shining examples where brave decisions have allowed financial decisions to be removed from the hands of self-interested politicians.
Realistically though, many argue that that pensions are too electorally important to make separating the two realistic.
There is also a question about the feasibility of separating the two.
Catherine McKenna, global head of pensions at law firm Squire Patton Boggs felt that pensions should ideally be apolitical but that “delivering this in practice though would be a quantum leap from where we are now, where state and private pensions are so intrinsically linked with taxation policy and affordability.”
Darren Philp, director of policy and market engagement at mastertrust B&CE agrees that you can never really take politics completely out of pensions, because you can’t have a body that is making decisions about tax and spending on behalf of the government.
Philp does, however, think there is scope for an office for pensions responsibility, which provides independent oversight and holds the government to account on pensions reform.
“Chancellors will still want to pull rabbits out of hats at budgets”
He makes a good case for comparison with the OBR saying, “Tax policy making is the preserve and always will be the preserve of treasury ministers and parliament, but what the OBR does is hold the government to account.”
Compelling though the ability to completely separate pensions and politics might be, it is unlikely to happen. The over-55s are overwhelmingly the biggest voters and pensions reforms are one easy way of courting the grey vote.
As Philp puts it, “Chancellors will still want to pull rabbits out of hats at budgets”.
However, an independent commission or office for pensions responsibility may be more likely, particularly if it is framed in the right way. Unpopular decisions such as raising the state pension age are much easier for politicians to make if the findings of an independent commission can validate the need for them.
If politicians can see that an independent body may be useful in calculating the impact of different policies, they may be more inclined to make it a reality.
Whether this will lead to more stability is uncertain, as pensions remain a popular tool for engaging the electorate, but it could provide more long term direction as to the future of pensions reform.