The Pensions Management Institute's Tim Middleton looks back at pension policy under the previous government, and reveals his thoughts on what the new government should do differently.
One high-profile casualty of the EU referendum was George Osborne. Before his return to the back benches, he had formally abandoned his goal of achieving a Budget surplus by 2020.
It would be encouraging to think that there might be a return to a more traditional culture of pensions reform: one in which there is a proper process of consultation
The aggressive pursuit of this objective included a focus on pension provision and the introduction of a series of controversial initiatives designed, at least in part, to increase short-term tax revenues.
The first of these were the freedom and choice decumulation reforms of 2014. These were controversial in two regards.
Controversial manner of introducing reforms
Firstly, encouraging defined contribution members to access funds from age 55 risked promoting poor retirement outcomes.
While members may not necessarily have squandered retirement savings on classic Italian sports cars, removing the requirement to annuitise may well have exposed a great many members to the uncertainties of longevity risk.
The second controversial aspect to the reforms lay in the manner of their introduction. Announcing such major reforms as part of a Budget speech was without precedent.
We still do not know how much notice the then-pensions minister Steve Webb had of these changes, but a pattern had been established that has continued into the current government: pensions policy has been driven by the Treasury rather than by the Department for Work and Pensions.
It has also been introduced with little or no formal consultation beforehand, and arguably has been designed to address short-term budgetary objectives more than longer-term social policy concerns.
Another controversial proposal has been to replace the current system of tax relief for pension contributions – in place for 90 years – with a taxed-taxed-exempt regime comparable to that which applies to Isas.
Once again, the pensions industry braced itself for a fait accompli designed principally to address short-term tax revenue concerns rather than providing a workable pension system for future generations.
While Steve Webb had maintained a discreet silence on Treasury-led pension reforms when in government, on this occasion he was more forthright: he denounced TEE as "daylight robbery".
Pressure to extract revenues has reduced
Following the arrival of Philip Hammond at Number 11, it remains too early to make meaningful predictions concerning the impact on pensions policy of a new chancellor.
However, following the abandonment of the previous surplus target, the short-term pressure for seeking to extract additional tax revenue from private pensions hopefully has reduced.
It would be encouraging to think that there might be a return to a more traditional culture of pensions reform: one in which policy would be driven by the DWP rather than by the Treasury, and one in which there is a proper process of consultation with the pensions industry before the introduction of major changes.
The experience of the past two years has prompted many within the industry to call again for the introduction of an independent Standing Pensions Commission which would promote policy in a depoliticised environment and encourage planning over the longer term.
This would permit policy to develop in a stable manner that would enjoy genuine consensus across the political divide.
Somewhat poignantly, there was another pensions-related casualty in government. In July, Ros Altmann resigned as pensions minister.
In her letter to Theresa May, she complained that “unfortunately over the past year, short-term political considerations… have inhibited good policymaking”.
Ironically George Osborne had already left the government by the time of Altmann’s own departure. For her, however, it appears that the damage had already been done.
There is one final point concerning the new government’s plans for the pension system that is worthy of note.
Altmann’s replacement, Richard Harrington, is not a full minister but an under-secretary. This implies a downgrade for the pensions brief.
We can only hope that the new government will show the proper level of commitment to the pensions system that the subject deserves.
Tim Middleton is technical consultant at the Pensions Management Institute
