The UK’s newly elected Conservative majority government will be more preoccupied with addressing challenges in the real economy than changing pensions policy, says former Conservative Cabinet member David Willetts
Challenges such as raising productivity performance, exports, and boosting investment are likely to rank higher on the government’s list of priorities than pensions, he said.
Highlighting reforms made to pensions during the last Conservative-Liberal Democrat coalition, he said in his view the government will now focus on consolidation.
“The next few years will not be as exciting, there is clearly an important task of consolidation in front of us”
“The next few years will not be as exciting, there is clearly an important task of consolidation in front of us,” he told the audience at Workplace Pensions Live.
The government will likely recommit to auto enrolment and seek to make the regulatory approach “as light touch as possible”, he said. A single tier pension follows on logically from auto enrolment, he added.
On liberalisation of the annuities market, he said recently introduced changes will stand the test of time as “one of the great Conservative reforms”. At the time, Chancellor George Osborne was concerned that abolition of compulsory annuities would raise the welfare budget, he said.
Osborne has meanwhile been frustrated that connections between pensions and property assets have failed to materialise, said Willetts, adding that the Chancellor would like to see the link between pension funds and housebuilding strengthened, allowing schemes to gain income from high quality rental properties.
Willetts also set out his views on long term challenges for pensions provision, drawn from his book on fairness between generations titled ‘The Pinch’. Establishing the economic context for these challenges, he said pension entitlement became an “unchallengeable property right” for baby boomers who failed to take into consideration generations after them. And an explanation for the UK’s current low pay puzzle is that companies are plugging money into pension scheme deficits, he added.
To address these dual challenges, he called for an intergenerational family pension as a way for families to pass on their pension entitlement to their children.
The shift from DB to DC “looks like saving money for employers, but some DC schemes are going to yield very modest pensions”, said Willetts. As a result, he said, employers may have to offer a large discretionary top up payment into DC pots in order for employees to reach their retirement goals, adding some form of DB scheme may eventually make a comeback.
Social care should also be linked to pension products, he said. “Rather than creating new social care products which are completely freestanding, it’s far better to bring these within existing pension schemes.”