James Daley: It's time to grasp the pensions nettle
Saturday 26 July 2008
Over the past few years, the Government has been busy laying the groundwork for what could be the biggest financial mis-selling scandal of all time. In the environs of Westminster, this dangerous piece of legislation goes by the name of the Pensions Bill – an Act of Parliament that, in its current shape, will ensure that, in four years' time, every working man and woman is automatically made to start contributing to a savings scheme, which may leave them no better off by the time they retire.
Auto-enrolment, as a concept, is certainly no bad thing. After all, in today's "spend more, save less" society, people are not putting nearly enough away for their retirement, and are, therefore, in need of a little encouragement when it comes to pensions.
The problem is that the current state-pension system – which is based heavily around means-testing – is such a mess that people cannot know for sure that every pound they save will make them at least a pound better off in retirement. Although the introduction of means-tested pensions-credit was a great short-term fix, which helped pull a large number of pensioners out of poverty, one of its unintended consequences was that people who have saved nothing can still end up with as much money as people who saved modestly their whole life. And this situation is now threatening to undermine the entire process of pensions reform. The obvious and simple solution, proposed by numerous think-tanks, is to raise the level of the state pension so that means-testing is no longer necessary.
But this is a proposal that Government ministers always immediately dismiss as unaffordable. However, with a rethink of pensions tax relief (which still, perversely, benefits the highest earners) and a shift to a funded system (whereby each individual's national insurance contributions goes into a pot to pay for their own pensions, not the pensions of those retiring today), it is not impossible.
The great thing about pensions is that they are a long-term game and so, with some clever thinking, it should be possible to spread the costs over decades, rather than having to pay for it all upfront.
Insiders, however, say that it's not just a matter of cost. Part of the problem is that, as Gordon Brown came up with concept of pensions credit, he is stubbornly resistant to the idea of getting rid of it.
But with Brown's government now seemingly on borrowed time, it's up to the Conservatives to seize the initiative and to put a stop to the current Pensions Bill. Back in January, when the bill started its second reading in the House of Commons, shadow Work and Pensions secretary Chris Grayling made a bold speech about how he'd continue to fight the Government over the difficult issue of means-testing.
In the event, however, the Tories waved the bill through, in spite of its many flaws, and seem to have lost their desire to fight.
But if they feel that this issue is no longer worth fighting for because Labour is dead in the polls, they're wrong. The Pensions Bill provides an opportunity to design a system which will serve our country for generations. And, in two years time, it may well be Grayling who inherits the Department of Work and Pensions, along with a mess of ill-thought-through legislation to untangle.
Although it will shatter the fragile cross-party consensus that everyone has been so keen to maintain during the recent pensions reform, it's now time for the Tories to use their weight to ensure that the Pensions Bill is not yet another wasted opportunity to reform the savings landscape for the better.
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