Written by David Weeks: Co-Chair, Association of Member Nominated Trustees: 25 November 2019
Mrs May's snap general election campaign in 2017 unravelled rapidly after a gaffe in her manifesto over care costs for the elderly. An unwise new policy appearance derailed a broader agenda. The debacle also showed how it can become difficult to promote sensible policies in an area once it has been turned into a political football. With that in mind, I look at some pensions issues that are cropping up in 2019. Some of these would benefit from being aired during the election campaign. An incoming Pensions Minister will hope that others of them are kept well clear of the light of day.
Astute manifesto writers normally observe a number of precepts. First, the prime purpose of a manifesto is to win an election. It may not be helpful to spell out what you might actually need to do in power. The second purpose is to avoid leaving any hostages to fortune, in the event that you do win, and have then to put your plans into action. Thirdly, a manifesto pledge needs to have a clear view on who will be gainers and who will be losers. Will plaudits from the one outweigh the brickbats from the other? Will a policy be likely to recruit allies, or to fire up potential opponents? Fourthly, ideas tend to have a time and tide. There may be some good gleams in the eye that public opinion is not yet ready to receive. Fifthly, some policies may need to be pushed forward in response to the press of events. Conversely, a policy may look witless if it seeks to address an issue that no one really saw as a problem in the first place.
Whatever happens in the election, two big long term pensions issues will remain as elephants in the room: the social care conundrum and the low rate of savings for pensions.
Boris Johnson asserted, during the Conservative party leadership campaign, that he would solve the social care conundrum “once and for all”. The Labour manifesto now says: “A Labour government will develop a planned model of joined up community care, enabling people to live longer lives in better health in their own homes”. The Lib Dems say that people are living longer; in consequence pensions need to last for up to 40 years. Lib Dems: “will build a country that is the best place in the world to save for, and enjoy, retirement”. The Conservatives manifesto says: “Because this is a long term problem that will affect so many people, any solution has to be able to survive long term. We must build the same level of consensus on social care as we have already built on the NHS.” They go further. “So we will build a cross party consensus to bring forward an answer that solves the problem, commands the widest possible support, and stands the test of time. That consensus will consider a range of options but one condition we do make is that nobody needing care should be forced to sell their home to pay for it.”
The second big issue, of course, is that far too many people have yet to save adequately to fund a decent lifestyle in retirement. Automatic enrolment took the first step in increasing numbers who are included in pension schemes. The task now is to enable, and encourage, them to increase the size of their pension pots. Labour picks out the self-employed, who need: “better access to mortgages and pension schemes”.
Thus, the election campaign may give a useful nudge to the idea that some sort of pensions commission could look more clearly at consensus solutions to these long term issues than can a Parliament, elected as it is for a maximum term of no more than five years. A pensions commission might include in its terms of reference a statutory target to push the UK up from its currently lowly placing in the Melbourne Mercer Global Pensions Index of 14th in 2019. A pensions commission could also have as an objective protecting pension funds from opportunistic raids by successive governments who slaver over ready pots of money. The Cameron government of 2010 gave protection for a budget for overseas aid. The next government should give similar protection for the funds of our pensioners.
The last Parliament was considering a Pension Schemes Bill when the election was called. This included proposals that attracted support from across the political spectrum. The Bill should be revived. Its provisions could add a dose of good sense in the election campaign. There is provision for collective defined contribution pension schemes, based on the fruitful negotiations that have taken place over the Royal Mail pensions scheme between sponsoring employer and trade union. The Bill also includes tougher powers for the Pensions Regulator to crack down on abuses. These are welcome. (Scrutiny of the Bill at Committee Stage might usefully remove some of the lurid and extravagant fines and prison terms for which individual trustees might unwittingly become involved. Similarly, it might be a popular refinement to send any income derived from fines to the Pension Protection Fund rather than to HM Treasury's Consolidated Fund.) The Bill includes measures to drive forward the introduction of pensions dashboards to give to individuals a clearer picture on how their lifetime savings are accruing.
There are several issues relating to regulation and simplification where the balance of power needs to be kept under review. A popular move could be for an incoming government to pledge increased competition and simplification for the fund management industry. There could be a tougher regulatory framework for costs and charges on pension scheme funds. Pension freedom has led to withdrawal of £30 billion of funds. Cutting risk of fraud in such transfers would be a good piece of consumer protection. The pensions industry has undertaken much work already. Then, the intervention of the courts over equalisation of Guaranteed Minimum Pensions (GMP) has proved troublesome. A new government could put the judges back in their box. Lib Dems say that they would address continuing inequalities that exist in pensions law for those in same sex relationships.
Pension scheme governance issues will continue to warrant attention from the next government. Across the political spectrum there is immediate interest in promoting democracy. It is the same climate of opinion that now prevails in the NHS. “Don't do things to me. Do things with me” is the NHS focus. A new government can rise to that immediately with greater protection on every pension scheme board for member nominated representation. Longer term, the Pensions Regulator draws attention to a rump of pension schemes (often smaller ones) where standards of governance are not up to scratch. A new pensions minister could tout new carrot and stick measures to ensure that all pension scheme members are afforded the same level of protection.
There is an opportunity to be grasped from changes that have already been introduced to reporting arrangements by pension schemes. Pension scheme trustees now have to report of their consideration of ESG factors: environmental, social and governance. They also have to meet the requirements of a new stewardship code. The Conservative manifesto has a cryptic passage about how this might be followed up: “We will unlock long term capital in pension funds to invest in and commercialise our scientific discoveries, creating a vibrant science-based economy post-Brexit.”
Tax and related issues need constant attention. Traditionally, HM Treasury has trumped Department for Work and Pensions in any negotiations. Some of these issues have moved up the league table of political salience because of the press of events. Problems with limits on pension contribution tax relief for lifetime allowances and annual allowances form one such case in point. The issue came to light when it was discovered that NHS consultants ran out of their lifetime allowances while their working lives still had years to run. Labour say that they will address this NHS problem: “A Labour government will review the tax and pension changes implemented by the Tory government”.
The Coalition Government's “triple lock” on Basic State Pension rates moved in and out of the spotlight. This deal offers to pensioners the greatest of three factors for income uprating: inflation, average earnings, or a straight 2.5 per cent. David Cameron in his memoirs said: “Over the years the DWP and Nick Clegg kept trying to cut them, and I had to keep stopping them.” Now, Lib Dems say that they will retain the triple lock. The Conservative manifesto trumpets how in 2010 Conservatives acted decisively to protect the UK's pensioners with the triple lock. A new government would keep this up, together with winter fuel payments and bus passes for older people. In addition: “we believe that the BBC should fund a free TV licence for over 75s”.
The State Retirement Age continues to come under scrutiny as projections vary about life expectancy levels. In addition, Brexit throws up fears, whether real or imagined, about anomalies that UK citizens would face if they had retired to other EU regimes. Likewise, EU citizens living in the UK are concerned about whether their rights might be reduced.
Some other issues have surfaced during the election campaign. Headlines appeared in some newspapers that: “Families suffer as values of retirement homes plummet.” This looks to set the scene for pledges about a clampdown on rogue housebuilders. Then, on WASPI (Women Against State Pension Inequality): Boris Johnson was challenged at his Sheffield Question Time sales pitch. He gave a dusty answer. Lib Dems, by contrast, say that they will ensure that women born in the 1950s are properly compensated for the failure of government to properly notify them of changes to the state pension age. Labour goes further. Shadow chancellor of the exchequer John McDonnell said that there is a £58 billion price tag to compensate the WASPI victims. Labour will commit to £12 billion of borrowing every year for five years to address it. 3.7 million women were affected by a rise in their retirement age from 60 to 65 in 2010. “This is a very special arrangement, a contingency, in the same way the government has in the past dealt with matters like this. The scale of this injustice is enormous. This is discrimination against women, in particular older women, many of whom are on low pay anyway.”
Political parties can choose what they put in their manifestos. They cannot necessarily choose whether their selection will continue to hold sway during the campaign. Those who may be affected subsequently have to hope that their interests will not be derailed in the hothouse atmosphere of a general election campaign.
Notes to editors AMNT
The Association of Member Nominated Trustees (AMNT) is a not-for-profit company limited by guarantee, set up by and for member-nominated trustees, member-nominated directors and employee representatives, of UK based occupational pension schemes in the private and public sector. Set up in 2010 it now has nearly 700 members from pension schemes with collective assets totalling more than £700 billion.
The Association is dedicated to providing those Member Nominees (MNs) with support, which underpins their critical role in ensuring that their pension scheme is governed in the best interests of the scheme members in consultation with their sponsors.
The AMNT will enable MNTs to build their skills and knowledge, voice their opinions, share best practice, become part of a like-minded community and be better recognised for the good and important work they do.
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