The changes at Westminster following the fateful EU referendum effectively resulted in a new government, including responsibility for pensions. Hopefully this does not signal a return to the revolving door at the Department for Work and Pensions.
For the first time since 2010, the person heading up the DWP is not already a pensions expert, giving Richard Harrington a challenging brief. The Pensions Management Institute wishes him every success, and is ready to help with the difficult agenda ahead.
But what agenda? So far, perhaps unsurprisingly, there has been little indication. Given the breadth of changes required to cope with Brexit, there is no guarantee of continuation with any pre-existing pension policies.
There is a role for a strong, well-informed DWP voice in government
But pensions do not only involve the DWP. Treasury influence over pension policy looks set to continue. Although the downgrading of the pensions minister to undersecretary of state is, we are assured, not a downgrading of the importance of pensions at the DWP, it still leaves that department with a weaker voice.
Treasury influence
One Treasury policy was the proposal for a market in second-hand annuities, the abandonment of which was recently announced. The reasons for the decision include the difficulty of striking a balance between ensuring member protection and providing freedom for the market to work effectively.
Although it was a sensible decision given the vulnerability of poorly informed and ageing individuals, it will no doubt be criticised – in particular by that very constituency. Hopefully this provides a clue, in the absence of hard policy pronouncements, as to the possible direction of government travel, such as protection of society’s more vulnerable ahead of further initiatives.
What of the DWP?
The pensions minister’s statements indicate some continuation of previous policies. One is the continuation of the triple lock. It seems that there is no desire yet to curb the buying power of the state pension, and as inflation restarts, the 2.5 per cent increase will begin to look like less of an anomaly.
The pensions bill also contains expected measures, including tighter mastertrust governance. This all supports private pensions. However, two new policy suggestions should be approached with caution.
First is the closer relationship between residential property and pension savings. Although expressed as using pooled residential property funds for a pension investment, it would then only be a short step to allowing pension fund investment in one’s own home. Indeed, the concept of the lifetime Isa already muddies the hitherto clear distinction between pensions and peoples' homes.
Then there is the point that saving options are too complex, with the solution being one simple universal saving product. While the observation has merit, the suggested solution does not. It implies consolidation of all savings tax relief into the Isa’s taxed, exempt, exempt basis – an outcome more attractive to a revenue-hungry exchequer than to ordinary savers.
Further, the loss of a dedicated income stream to replace earned income is a concern for most people. While freedom is attractive to those with large pots and other wealth, they are a minority.
Most need a retirement income to supplement a modest (sometimes non-existent) state pension. Without a compulsory minimum contribution from the savings scheme, retirement income needs can become overlooked. Such a solution requires careful thought.
Bearing the consequences
These suggestions risk relegating the true objective of the pension scheme to behind the attractions of tax revenue to the exchequer and a seductive vision of simplicity. Each is worthy in its way, but the objectives underpinning a pension scheme need to be foremost in their field, and not diluted by other considerations.
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While no doubt these suggestions are made in good faith and intended to promote socially desirable outcomes, the history of pensions contains many examples of good policy intentions where the consequences undermined their basic objectives.
There is a role for a strong, well-informed DWP voice in government to ensure the full consequences of any policy proposals affecting pensions are identified and clearly articulated. Hopefully that voice will continue to speak.
Kevin LeGrand is president of the Pensions Management Institute
