The new politics of pensions

 

What has leaving the European Union some time in 2019 have to do with four new Ministers at the DWP and as many at the Treasury?

 

We currently have no shadow pension minister, Angela Rayner who became shadow pension minister in late 2015 has now entered the cabinet , first as Minister for Women and now as Minister for Education.

 

The position of Pension Minister has been downgraded and is now occupied by under Secretary of State Nick Harrington.

 

The Treasury has also seen a clear out from George Osborne who returns to the back benches to Harriet Baldwin who bizarrely moves to the Ministry of Defence.

 

It is a picture of total change with Phil Hammond (Treasury) and Damian Green (DWP) now occupying the two key departments that impact pensions.

 

If the Government sounds unfamiliar, the shadow ministers are all but unknown. There is a shadow Secretary of State for the DWP but I doubt many of you could name her if I didn’t tell you it was Debbie Abrahams

 

Enough of politicians , what of policy? IFAs will be interested to know how all this change will impact the key Pensions policies; so what are they.

 

As far as pensions are concerned ; these are our top three issues

 

  1. Auto-enrolment; although this may not feature large in many IFA business plans, it is the number one concern of the DWP
  2. Pension inclusion; the Treasury’s number one priority is to find a way to keep their pension freedoms from becoming their pension albatross.
  3. Security for savers; the Pensions Bill , announced in the Queens Speech has yet to be published but it’s due to deliver better protection for consumers saving into mastertrusts and better value for savers looking to leave pension contracts earlier;

Auto-enrolment

As we all know by now, the DWP are very proud of auto-enrolment which former Pension Minister described as “that hen’s tooth – a public policy success”.

 

For friends of auto-enrolment, the shake-up at the DWP is not helpful and the question is how unhelpful. I’m organising my thinking around four risks

 

The risk that small employers see the pensions in chaos signs and give up on auto-enrolment

 

The planned improvements to workplace pensions, pencilled into the Pensions Bill are scrapped

 

The current political chaos becomes contagious and spills over into DWP’s operational unit- the Pensions Regulator

 

That we see an about turn in policy and all the preparation for 2016 onward is wasted.

 

Auto-enrolment is too much of a flagship to be allowed to fail but as Kate Upcraft , a leading payroll expert wrote to me

 

“Hugely disappointed with what’s gone on at DWP, why would a micro employer take pensions seriously when the government thinks it’s time to downgrade”.

Next year sees the first major review of auto-enrolment for 7 years .The DWP’s policy team, led by Charlotte Clark is stable and experienced, they have survived a lot of turmoil since the unit was put together over 10 years ago. I back auto-enrolment to remain unaffected by political change

 

 

Pension inclusion

While auto-enrolment has go us all in, the Government is struggling with how to get money out of our pension pots in a sensible fashion.

 

If the FAMR was the Treasury’s recognition that the RDR has not opened the door to mass-market financial advice, the recently announced Market Review of Retirement Outcomes is an admission that Pension Wise has not quite done it for the 400,000 of us reaching the retirement zone.

 

There seems to be an almost obsessional confidence in robo-advice and the curative powers of a pension dashboard to put this right. This part of the Government’s agenda has been driven by former Treasury Finance Minister Harriet Baldwin but there seems to be sufficient momentum to see this through.

 

Many providers of robe-advisers, myself included , are sceptical that digitally powered algorithms are anywhere near sophisticated enough to deliver an unadvised drawdown solution for the mass market/

 

Indeed (say it quietly) but many pension experts are openly discussing the need for collective drawdown solutions , with ideas discarded with the mothballing of the Defined Ambition proposals this time last year.

 

 

Security for savers

I fear for the Pensions Bill which was introduced at the Queen’s speech. It is Ros Altmann’s baby and though it’s scope isn’t broad, the improvements it should bring to master trusts are important. If you watched the recent Dispatches on the task for employers of selecting a pension, you will know how real the dangers of poor pensions can be.

 

NEST is currently calling for evidence about what might happen were it to broaden the scope of its service. It wants to act as an aggregator of pension savings (NEST restrictions are lifted in April) and it wants to be a mass decumulator ( a provider of collective drawdown).

 

The Government is clearly siding with its big battalions but it has a problem with its own national audit office. NEST is now reported to have drawn down some £460m of its £600m loan and if the cost of acquiring the assets to pay back the loan, exceeds NEST’s capacity to repay the money borrowed, then it is unlikely that the Audit Office will approve an expansionist NEST.

 

 

Other hot potatoes

 

Thankfully , the changes in the State Pension arrived before this turmoil. However the Government is not out of rough water yet. The Women Against State Pension (WASPI) have a new ally in the former Pension Minister Ros Altmann.

 

Ros Altmann has not left Government happily. Was she pushed or did she jump? It was 50/50 – or at least that’s what she told Vanessa Feltz on LBC. Judging by the rest of the interview, the former Pension Minister didn’t sound surprised to be losing her job, not disappointed.

 

She has been back blogging away for the first time since the election, busy telling us her plans for pensions had Brexit not happened. Brexit “did for” Altmann not just because she was “uber-remain”, but because her allies- Cameron and Osborne, left Government.

 

Altmann remains easily the most knowledgeable pension expert in either House and has been quick to put a spoke into the wheels of the Pensions ISA bandwagon.

 

She has also revealed her plan to merge pension policy making at DWP and Treasury within the Treasury. Ironically, the weakening of the Pension Minister’s status , announced by Theresa May, may have opened that very door.

 

Nature abhors a (power) vacuum.

 

Pension politics are in chaos and we await to see the impact on pension policy. In this power vacuum there is a danger that some of the sacred cows are off to the abattoir. When delivering the Margaret Thatcher memorial lecture, George Osborne stated that he could not have handed over to a more compatible Chancellor than Philip Hammond.

 

All but forgotten in the tumult of the last couple of months has been the proposal to reform pension tax relief, parked before this year’s budget (to prevent a Brexit!).

 

If Hammond is Osborne’s natural successor (and he worked with Osborne in previous Treasury teams) then look out for this thorny issue returning to our political radar before the Autumn Statement.

 

Anyone who was hoping that pensions would cease being a political football is likely to be disappointed. While austerity may be over, the fundamental flaws of our pension taxation system still looks unsustainable.

 

For by far the most telling statement by any politician were the words of Theresa May before entering Downing Street.

 

The government I lead will be driven not by the interests of the privileged few

 

That does not sound like good news for wealth management and for those who rely on tax-planning.

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , , , , , , , , , . Bookmark the permalink.

2 Responses to The new politics of pensions

  1. “The government I lead will be driven not by the interests of the privileged few

    That does not sound like good news for wealth management and for those who rely on tax-planning.”

    Not all bad news then.

    Liked by 1 person

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