In the first of a series of interviews with political candidates representing their parties on pensions issues, we hear from Alex Cunningham, Labour MP for Stockton North.
Is greater flexibility needed in the defined benefit system to help struggling employers?
The first port of call should be more transparency of costs and consolidation of small pension funds. Indexation should only be changed with the full consent of the scheme members. Before any changes to benefits are made there should be a requirement for a full investigation of the scheme’s costs, and changes to investment allocation explored to improve performance.
Does the Pensions Regulator need more powers to tackle employers?
Yes, too often sponsors take the easy route of closing the scheme. We want to see a greater role for the regulator in ensuring maximum efficiency of our pension funds.
The larger the pension funds the better the investment performance. Any asset manager will tell you that scale is critical to the performance of their funds
Should valuation methodologies be changed for DB schemes?
Some schemes are being valued too cautiously, and this is a clear problem for those schemes open to accrual where ongoing costs are unaffordable on these over-prudent bases, although it is less a legislative problem. In the past, the regulator hasn’t helped, but to its credit it has been talking up the flexibilities in the funding regulations in recent years, and it should continue to do so.
Should DB schemes be consolidated?
Consolidation either through pooling of assets or a more formal merger into industry-based schemes would be of great benefit to sponsoring employers and to members. Evidence produced by the Dutch central bank demonstrates that the larger the pension funds, the better the investment performance. Any asset manager will tell you that scale is critical to the performance of their funds.
How can auto-enrolment be improved?
Too many workers are being left out of the process. We want to increase coverage, particularly for the self-employed. There is also the issue of those working multiple low-paid jobs, and those on very low incomes. We also need to develop a way of ensuring carers can benefit from a personal pension.
The Labour Party will allow pension funds to be established in the UK on a collective basis, along the lines of the Dutch and Danish pension systems
Should minimum contribution rates be raised further than currently planned?
Minimum contribution rates need to be kept under review, and first we need to address cost transparency to ensure that defined contribution members would get full benefit from an increase in their contribution rates. Under the current system, simply adding more to the pot does not mean they will get full benefit from the money added when they come to draw their pension down. Reductions in the cost of saving could have more benefit over the life of accumulation than hiking up the contribution rates even further.
Would you scrap the lifetime Isa?
We have no plans to scrap the lifetime Isa; it may have a role to play in supporting saving among groups that have not traditionally taken the pensions route. Much more however needs to be done to promote and explain the benefits of traditional pensions to encourage greater saving through that route.
Will your party pledge no further changes to pensions taxation?
Pensions tax reform just isn’t our focus, there are many more pressing reforms as I have outlined. We value stability in our pension system, and believe that major reforms should be taken forward on the basis of political consensus. The Tories have undermined retirement saving through rash political game-playing.
Is there a country that the UK can take inspiration from in building a better pensions economy?
The Netherlands has all the ingredients of a member-centred pension system. They have large collective funds, transparency in costs and a trustee-based system. They have regulators committed to efficiency within the system and what’s more, regular and succinct analysis of the funds’ performance.
This reflects their evidence-based approach, something the UK falls far short of under this government. And they take responsible investment very seriously, having some of the most active investors in the world.
The Labour Party will allow pension funds to be established in the UK on a collective basis, along the lines of the Dutch and Danish pension systems. These are recognised as the best pension systems in the world and can offer pensions 30-40 per cent higher than available to retirees in Britain today. But they should only be run by trustee boards who owe their loyalty to the members of the fund.
