What a Labour government could mean for pensions

It is impossible for anyone to predict who is likely to come out with the most seats. There are at least four possible outcomes, and there is genuine uncertainty. 

But in pure policy terms, the three main parties are not a million miles apart – they all seem to be playing for the middle ground. 

The interest is created by the peripheral parties and how they might influence certain major policy areas in due course. 

From a pensions perspective this is not a big deal. None of the nationalist parties from any corner of the UK seem to have strong views on the future shape of pension provision, thus the major party consensus is likely to prevail. 

But what does this mean? 

A continued shift to private sector defined contribution; the continuation of auto-enrolment, an increased focus on DC costs and governance, continued attempts to water down the public sector defined benefit liability, and attempts to create economy of scale among the statutory schemes. 

The devil is in the detail as far as differences are concerned. None of the parties have published a manifesto as of yet, but a trawl of the internet gives us some clues. 

Further restricting tax relief for higher earners could backfire, and introducing regional retirement ages would be highly complex and risky

The bigger-ticket items for the Labour party, in no particular order, are: 

• Modernising fiduciary duty – backed by a code of practice – and extending it so that all workplace pension schemes will be required to have trustees.

• This, presumably, implies a beefing up of the independent governance committees that all insurers are due to have in place by April.

• The party wants trustee boards to contain representation from a much wider constituency to include trade unions and members. Every scheme will need an independent trustee.

• It plans to restrict contribution tax relief for higher earners and explore ways of helping lower earners and the self-employed get ‘fair access’ to pension savings – possibly including lowering the auto-enrolment minimum earnings threshold.

• It wants to review the state retirement age and assess its impact on different groups of people, including by region and sector – a thorny and complex issue as life expectancy does vary significantly around the UK. 

• The party plans a new requirement for investment managers to disclose how they vote on executive pay and other issues, with the aim of ramping up corporate governance standards. 

• It further plans a full risk assessment of the current government’s removal of compulsory annuitisation to ensure there are no unintended consequences or costs to the public.

Gregg McClymont, the shadow pensions minister, has already suggested the new pension flexibilities just allow people to make more, and increasingly worse, decisions.

The output of such a risk assessment could, presumably, be a wholesale or partial reversal of the policy – a somewhat politically challenging removal of ‘freedom’.

Progress?

Although not major in policy terms, all of these plans could be significant in delivery terms and may create logjams in the pension system.   

Where would all this leave us? Assuming we could get through the logjams and deliver, probably not materially further forward. 

Clearer, perhaps tougher – certainly more representative – governance is not automatically more effective. 

Auto-enrolling low-paid workers into low-contribution pension schemes will not necessarily lead to less pensioner poverty. 

Further restricting tax relief for higher earners could backfire, and introducing regional retirement ages would be highly complex and risky. 

Pension provision is, by definition, long-term in nature. In this context, it is right that policy should gently nudge it towards improvement and a successful outcome. 

The revolution of the Steve Webb years – mostly good and needed – seems for the time being at least to be behind us. 

Richard Butcher is managing director at independent trustee PTL