A commission most certainly isn’t a panacea - but a longer-term view could be useful
Let’s face it: the last year in pensions has been quite barkingly mad.
Poor Steven Robson, head of pensions at United Utilities, wearily lists the legislation he’s been lumbered with over the last year. There are fourteen massive changes on his to do list, including addressing the government’s freedom and choice agenda, the charges cap and auto-enrolment.
He concludes: “When you add the serious financial issues around DB arrangements and the need to manage the impact of quantitative easing and all-time-low interest rates, then is it any wonder that companies are increasingly looking to do the bare minimum?”
That’s before we even get into politicians’ plans to slash tax relief. The Conservatives have already promised to lower the lifetime tax allowance from £1.25 million to £1 million in April 2016.
“Chipping away at the lifetime allowance sends the wrong message to eager savers seeking to do the right thing”
All the main parties pledge further cuts to tax relief on pension contributions, in proposals which would be bewilderingly complex to implement.
Labour even conflates cutting tax relief with tax avoidance in its manifesto, which won’t help savers’ understanding: “Labour will cut tuition fees from £9,000 to £6,000 a year, funded by restricting tax relief on pension contributions for the highest earners and clamping down on tax avoidance.”
Tinkering with tax relief will not just affect the rich. A £1 million pension pot would only buy an index-linked annuity income of £25,480 per year.
As Chris Wagstaff, head of pensions and investment education at Columbia Threadneedle Investments, points out: “Chipping away at the lifetime allowance sends the wrong message to eager savers seeking to do the right thing – ‘invest more and you’ll be penalised.’”
The complex relationship between pensions and politics is a major theme at next week’s Workplace Pensions Live conference. For more information and to sign up, click here.
Enough is enough
No wonder various influential industry bodies have had enough of politicians tinkering with pensions. The National Association of Pension Funds, the Association of British Insurers and the Trades Union Congress are calling for an independent retirement commission to wrest pensions from the grubby grasp of politicians.
“Voters don’t vote for power to be continuously in the hands of a group of arm’s-length commissioners.”
In a report on the subject, which includes Robson’s aforementioned comments, the NAPF refers to the “relentless march of pensions policy”.
It’s hard not to agree. But is an independent retirement committee the right way to tackle the constant politicising of pensions (which, let’s face it, is hardly a new phenomenon)?
No doubt all the usual pensions grandees are rubbing their hands together. Yet another commission to get involved with! A shiny new addition to the CV!
The NAPF and co are keen to emphasise that the retirement commission must comprise independent experts and go so far as to suggest it should be led by four experts from the following fields: academia, the charity sector, the industry and employees.
Finding truly independent people who also happen to be experts in pensions will be a tall order. A cynic might suggest that the experts in charge of an independent retirement commission, the majority of whom will presumably have spent some time working in the pensions industry, might be more open to the influence of industry lobbyists than politicians are.
“Roughly every ten or fifteen years, it seems, there is a turnaround in how the State views the individual’s role in his or her own retirement planning.”
Politicians may be dedicated to vote-winning and are not always knowledgeable about pensions, but at least they can claim a little distance from the industry.
Next there’s the issue of accountability. As David Willetts MP, a former shadow minister for Work and Pensions, told Pensions Insight: “Voters actually expect when they vote to be changing the government, they don’t vote for power to be continuously in the hands of a group of arm’s-length commissioners.”
According to the NAPF’s chief executive Joanne Segars: “A new standing commission will help make sure the long-term interests of savers, not the short-term interests of politicians, are at the heart of pensions policy.”
But the government is elected to represent the views of voters. If it fails to do so, it should be voted out. Why would an unelected commission be better at safeguarding savers’ interests than elected politicians?
Entrusting decision-making powers to unelected people with agendas of their own is a surefire way to create calamitous policy. Select committees already exist to hold political parties to account on their pledges.
Finally, what impact would an independent commission realistically have over the future of pensions? Auto-escalation must be the next government’s priority in order to make today’s nascent workplace pensions schemes a success for tomorrow. It’s difficult to see what an independent commission could add to that open-and-shut debate.
And if a government is really hell-bent on tinkering with tax relief to fund a policy which they think will win them more votes (cutting tuition fees is the obvious example) then it’s unlikely that an independent commission would be able to sway them.
The third way
All of that said, it’s hard not to see Chris Hitchen, chief executive of RPMI’s point when he writes the following in the NAPF’s report:
“Roughly every ten or fifteen years, it seems, there is a turnaround in how the State views the individual’s role in his or her own retirement planning.
“The pre-Thatcherite consensus was that State and employer knew best and pension participation was often compulsory. This changed in 1988 with the introduction of personal pensions and personal choice, but then reversed again following the 2005 Turner report, which ushered in the politics of Nudge2, exemplified by automatic enrolment.
“Now we are back to Freedom and Choice, with individuals free to encash defined contribution pensions at will. Each shift had its justifications, but collectively they do not add up to a coherent approach.
“Many people, myself included, have worked and saved under all of the four regimes outlined. We are the same people we always were, but regarded very differently by successive governments.”
A body which tried to ensure some long-term continuity in the way that people are seen and treated by government could prove useful.
In addition, the NAPF and partners emphasise that this commission would not be a panacea. The report reads: “It would be unrealistic to believe that [a commission] can, of itself, solve or indeed substitute some major political public policy choices which politicians are there to make.
“What it can do – as evidenced by the work of the Hutton and Turner inquiries – is help create the pathway to solutions where common ground exists and to try to help achieve the kind of policy consensus ‘lock-in’ that is often difficult to achieve within short-term political cycles.”
If it hires truly independent people, is not entrusted with decisions, has a very clear remit, and a long-term view, then perhaps an independent retirement commission could add value.
But those are an awful lot of “ifs”.