Pensions needs more politics not less

If I had a tenner every time I heard someone call for the politics to be taken out of pensions then I’d be close to hitting the tax relief limits on my pension plan.

Last week former minister Lord John Hutton called for a permanent independent pension commission to set long-term policy. Advisers call for political stability every day. Providers, still licking their wounds after last year’s bombshell Budget announcement on pension freedoms, think of little else but an end to “tinkering”.

With tomorrow’s Budget the industry is pleading with the Treasury not to do anything that will rip a hole in their business models.

And you can see what they mean. Whether it is last year’s shock freedoms, the new plan for a second hand annuity market or tinkering with tax relief change is the only constant.

But, so the argument goes, a pension is a long-term saving plan that needs certainty and steady rules so big changes for short-term political expediency are potentially ruinous.

The anti-politics brigade want some kind of elite panel of experts to make plans beyond parliaments more befitting the long-term nature of pensions.

This is ridiculous. Elections are meant to change things. They are the expressed will of the British public and if they vote for a party or politician that wants to tinker with pensions all day long then that is their democratic right.

It is also the democratic right of representative elected politicians to continually reflect the will of the population even when there are no imminent elections in Budgets, autumn statements etc.

There would be little legitimacy for a permanent panel of so-called experts – most likely drawn from a self-interested industry where most of the pension expertise and lobbying money resides.

Nobody can deny that the 2005 cross-party Pensions Commission led by Lord Adair Turner broke a logjam in pension saving but it only succeeded because its results were backed by elected politicians.

Long-term thinking will only happen when the politicians demands it with their democratic legitimacy. Pensions is too important to be left to dry technocrats with no elected accountability.

What people really mean when they call for the politics to be taken out of pensions is that they don’t like the policy.

Look at annuity specialists Just Retirement and Partnership, bruised by last year’s Budget on freedoms but welcoming this year’s annuity plans.

Or Legal & General insisting on a 0.5% pension charge cap but warning over drawdown demands from savers.

Or Hargreaves Lansdown insisting on no changes to pension tax relief but happy to propose radical changes to auto-enrolment contributions.

When George Osborne tinkered with inheritance tax by abolishing the 55% charge on pension pots passed on to beneficiaries, advisers were delighted. Great tinkering!

But last week when Ed Miliband said he wanted to cut pension tax relief lifetime allowance from £1.25m to £1m and the annual allowance form £40,000 to £30,000, advisers complained. Bad tinkering!

Cap on drawdown charges? Bad tinkering. Cuts to inheritance tax? Good tinkering.

This shows the conundrum of those who call for politics to be taking out of pensions. What they really want is for those in power to do more of the policies they agree with and less of the policies they don’t agree with.

We need to stop the fetish for being “non-political” because one person’s short-term political expediency is another person’s dream policy change. That’s politics and the more of it we have in pensions, the better.

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4 thoughts on “Pensions needs more politics not less

  • Struggling to keep the number of things about this article I disagree with down to an acceptable number. I’ll give it a try.

    1. ‘Elections are meant to change things’. No they are not.

    2. ‘The anti-politics brigade.’ Lumping people with a similar opinion together and calling them a name like ‘brigade’ to create the impression they are blindly following one another and therefore undermine their opinion is a cheap journalistic device. See also ‘fetish’.

    3. A general election is an extremely blunt instrument. People vote for a party for all sorts of reasons, many of them to do with the fact they like a certain politician. I imagine few people will vote (say) Tory because of their policy on pensions alone.

    4. ‘What people really mean when they call for the politics to be taken out of pensions is that they don’t like the policy.’ No it isn’t. What a writer really means when they put words into other people’s mouths is that it suits their argument.

    5. ‘This shows the conundrum of those who call for politics to be taking out of pensions.’ Again, we are not one lump of people. I’m sure everyone has their own reasons. Some may be self serving. Some may not.

    My reasons for wanting politicians kept away from pensions is partly because pensions are a long term issue and politicians think short term, and partly because clients cannot plan for their long term when the pension rules keep changing.

    Nothing self serving there, I’m sure you’ll agree.

    Reply
  • Thanks Chris.

    1. Elections are meant to change things. Each party and candidate runs with a manifesto i.e a list of stuff they want to change

    2. Cheap journalistic tricks? Guilty

    3. Yep, people vote for all kinds of reasons but if the person they choose to represent them wants to tinker with pensions then they have a mandate to do so.

    4. Yep, it suits my argument to paraphrase what I have heard many times. That is my analysis of most people’s motives: “I like this tinkering but not that tinkering”

    5. Fair enough, you’re not one lump of people.

    I never said it was necessarily self-serving to want politics away from pensions. You have fair reasons that serve your clients. But, for me, that is not enough of a reason to de-politicise something so important

    Reply
    • Hi Sam, thanks for responding. Just a couple of observations.

      1. The purpose of elections is not change things. Much of a party’s policies never change. Many people vote for a party because they always have, or their parents did. Many people vote for a party specifically because they know what they are going to get. Elections are about choosing who we want to Govern, but that does not have to involve change.

      I’m sure others will judge for themselves, but most of your piece is an accusation of self serving opinion, whether it be Just Retirement and Partnership or good and bad tinkering.

      And overall – my reasons are nothing to do with serving our clients or, indeed, myself. They are to do with the long term economic welfare of the country. Decisions on interest rates are not part of party policy, they are set by the Bank of England free from Government interference. I believe pensions should be afforded the same treatment, for the same reason.

      Reply
  • It wouldn’t make for much of a headline if politicians did nothing about pensions (or other important stuff) like education, health etc.
    You need to have a close look at yourself, Sam, as you are part of the problem.
    The increase in the quantity of the media, and its accompanying reduction in quality, has resulted in politicians reacting by doing more.
    Politicians like to pretend that they make things ok, whilst the media knows that newspapers etc are sold by pretending that they aren’t. And, of course, journalist’s paymasters (the advertisers, Mr Murdoch) are pretty good at playing the public through the media. So, one of your paymasters gets you to make up a problem (usually a “scandal”), that sells newspapers and advertising space, and the predictable politicians react by doing something about it. The usual reaction to a problem is to create some extra bureaucracy (regulation); despite decades of failure of bureaucratic regulation (not just in financial services), this seems to be the solution of choice.
    You’d do everyone a favour if you investigated whether the 2005 commission had been successful. If you spent a few minutes thinking about it, you might realise that it’s a little too early to tell.
    Journalists need to find a new business model, before you become completely redundant, Sam.

    Reply

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