Why are pensions Labour’s sacred cow?

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Yesterday the Labour Party published a radical manifesto designed , among other things, to address inequality in British society by redistributing from those who have to those who haven’t.

Hardly an area of British life would be untouched by this manifesto. If it  was adopted after a Labour majority, we would see radical changes in matters as diverse as public ownership, tuition fees and funding of the NHS.

The 83bn GDP cost of improving services to the general public will be met from extra taxes on high earners and business.

And yet the 40bn GDP cost of pension tax relief has not been put under any threat of change.  Why are pensions Labour’s sacred cow?


The sacred cow is public sector pensions

To understand Labour’s failure to get to terms with the inequality of pension tax relief distribution , you need to think people not policy. The Labour party’s policy is dominated by unions – Unison, the public sector union and Unite. 

These unions, not only dominates union pension policy, they control Labour policy and they are  driven by an almost messianic commitment to preserve public sector pensions whether funded or unfunded.

Any radical policy that undermines the principal of member rights to a defined benefit is  squashed by Unison and by the Labour party’s powerful union lobby.

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Of course we can have radical pension policies which reinforce public sector pensions.

The manifesto pledge to freeze increases in the State Retirement Age at 66, should be paid for by some kind of levy on public and private pensions but appears to be uncosted and so a pass-on to future generations

Similarly , improvements to benefits to pensioners


What then for the private sector?

While public sector pensions, state pensions and pensioner benefits are preserved or improved, the private sector are set to be squeezed by pension policy.

What for the sponsors of workplace pensions?

In sharp contrast to the protectionism in the rest of the document, private sector workplace pensions seem set for more reform with the focus being on the costs to employers of workplace pension contributions.

There are cryptic references in the costings section of the manifesto to a 10 per cent contribution rate assumed on wages – P 11.

Hourly rates have been adjusted to factor in 10% pension contributions for staff 

While these proposals are sketched in to policy, the big proposal is to set up an independent Pensions’ Commission – modelled on the Low Pay Commission – to recommend target levels for workplace pension.

One can only assume that 10 per cent is the imputed future employer contribution rate for auto-enrolled pensions.


What for the ordinary saver?

There is nothing in the manifesto of comfort to DC savers who appear to be “off -radar”.

The only reference to consumer protections is against ‘rip-off auto enrolment schemes’. Workplace pensions have just gone through the master trust authorisation process and are under intense scrutiny when GPPs. Where are these rip-off AE schemes?

It is as if the Labour party knows nothing about what is actually happening to the vast majority of UK retirement savers.

This is precisely what you would expect from a pension policy team – so dominated by unions and so under-represented by anyone from the private sector. There is nothing here for the ordinary person who does not have the good fortune to be in a union-dominated collective pension scheme.

In short, the private sector gets the stick, the public sector gets the carrot.


And it’s very short on detail…

There are a few passing nods to the detail of pensions policy. Labour supports CDC – so long as they are for  “Royal Mail and similar schemes” …. similar schemes?

Labour supports a single (state controlled) dashboard.  Labour will continue to push for transparency on cost and charges.

But when it comes to less fashionable policy items, such as the fate of the 1.7m employees, enrolled into workplace pensions but getting none of the promised 25 per cent rebate on their pension contributions – nothing. This doesn’t even make it into the remit of the Pensions Commission.

It is as is anything that might upset the status quo on public sector pensions [where most of the net pay scandal is going on, is out of bounds.

I am sorry to say it, but the Labour party appears to be feather bedding their own  and excluding  anyone who isn’t in the Union pension corral from the fun.


And what is left…?

Left in if you are in the public sector, left out if you aren’t – the politics of the left show little sympathy for pension funds.

The PLSA have thrown their hands up in horror over the impact on DB funding of Labour’s privatisation plans. DC pension growth could be stunted by the planned taxes on dividends and it looks like pensions will become an employer tax under a future Labour Government.

What is left out – of this manifesto – is any attempt to get to grips with the glaring inequality  of the distribution of pensions tax relief

2/3rds of tax relief paid out by Govt goes to higher rates taxpayers, despite only representing 1/4 of the people claiming it

What is the left but a way of correcting such inequalities?

And what is left of Labour’s pension policy without a strategy to correct this issue?

I would argue that the Labour Party’s pension manifesto is a sop to the unions, an affront to the private sector and that it presents a bill to future generations so that the cosy status quo that prevails today, can persist.

It reinforces the very real inequalities between public sector and private sector pensions and does nothing to address the fundamental unfairness of pension taxation.

farmer and the cowboy

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Appendix

 

What the Labour manifesto says on pensions


People work hard for most of their lives
and deserve a decent retirement free of
financial stress and insecurity.
Under the Tories, 400,000 pensioners
have been pushed into poverty and
a generation of women born in the
1950s have had their pension age
changed without fair notification.
This betrayal left millions of women
with no time to make alternative plans
– with sometimes devastating personal
consequences.


Labour recognises this injustice, and
will work with these women to design
a system of recompense for the losses
and insecurity they have suffered.
We will ensure that such an injustice
can never happen again by legislating
to prevent accrued rights to the state
pension from being changed.


The Conservatives have repeatedly
raised the state pension age despite
overseeing a decline in life expectancy.
Labour will abandon the Tories’ plans
to raise the State Pension Age, leaving
it at 66. We will review retirement ages
for physically arduous and stressful
occupations, including shift workers,
in the public and private sectors.


We will maintain the ‘triple lock’ and
guarantee the Winter Fuel Payment,
free TV licences and free bus passes
as universal benefits.


Thanks to automatic enrolment,
which was introduced by the last
Labour government, record numbers
of employees are now in workplace
pension schemes. But too many
people are still not saving enough
for a comfortable retirement.


We will stop people being auto-enrolled
into rip-off schemes and seek to
widen and expand access for more
low-income and self-employed workers.


We will establish an independent
Pensions’ Commission, modelled on the
Low Pay Commission, to recommend
target levels for workplace pensions.
We will create a single, comprehensive
and publicly run pensions dashboard
that is fully transparent, including
information about costs and charges.
We will legislate to allow the CWU/Royal Mail agreement for a collective
pension scheme to proceed and allow
similar schemes.


Labour has listened to the NUM and
in government will end the injustice of
the state taking 50% of the surplus in
the Mineworkers’ Pension Scheme and
introduce new sharing arrangements
so that 10% goes to government and
90% stays with scheme members.

 

 


This new sharing arrangement will
also apply to the British Coal Staff
Superannuation Scheme.
We will ensure that the pensions of UK
citizens living overseas rise in line with
pensions in Britain.


Pensions in the costings document which accompanies  the manifesto

Restore pension credit for mixed aged couples

WP Research and Analysis briefing ‘Mixed age couples: benefit impacts of ending access to Pension Credit and pension age Housing Benefit’ (updated April 2019) gives the estimated saving from implementing this policy as:

Screenshot 2019-11-22 at 07.48.10

Screenshot 2019-11-22 at 07.48.25
This figure was estimated by the House of Commons Library by taking the total expenditure on frozen pensions in 2018-19 and applying the Office of Budget Responsibility’s annual ‘triple lock’ uprating forecast to each of the following years.

Calculations are based on DWP Benefit Expenditure and Caseload Tables, DWP Stat-Xplore State Pension dataset and the OBR Economic and Fiscal Outlook March 2019.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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9 Responses to Why are pensions Labour’s sacred cow?

  1. Brian G says:

    I have not yet read any of the manifestos but suspect your points about the disparity between public and private sector policy will be right. Can you also give an equal breakdown of the Conservative and Lib Dem pension elements in their respective manifestos?

  2. henry tapper says:

    Brian, I intend to look at the Liberals over the weekend; it has watered down its position since the last manifesto on tax.

    • Phil Castle says:

      What about the Greens as ironically we could see our first Green MP in South Thanet as you’d have to be a looney to vote labour based on this manifesto and the seat flip flops between Con and Lab, hence why Nigel Farage tried to get elected as an MP here.

  3. Ant Donaldosn says:

    My reading of the manifesto was that the reference to “rip-off” auto-enrolment schemes was specifically about ending the net pay anomaly – which I know you believe is needed – and I’d be very surprised if that wasn’t something the new Pensions’ Commission would look into.

    Similarly, allowing “the CWU/Royal Mail agreement for a collective pension scheme to proceed and … similar schemes” is simply about legislating to enable CDC, another good thing.

    On this (fairly rare) occasion, I’m not sure I can agree with your analysis!

    • henry tapper says:

      I hadn’t read it that way. The phrase has been translated from the previous manifesto, I don’t suppose that anyone thought about the good work that has been done by DWP/tPR on the master trust authorisation regime.

      Actually, most of those who are caught by the net pay “rip-off” are public sector workers who may have been in their schemes prior to AE and caught by the increase in the tax-threshold so I’m not sure the linkage is really there

  4. Ant Donaldson says:

    My reading of the manifesto was that the reference to stopping “people being auto-enrolled into rip-off schemes ” was specifically about ending the net pay anomaly, something I know you support strongly and which I would expect the new Pensions’ Commission to look into as one of their first priorities.

    And legislating “to allow the CWU/Royal Mail agreement for a collective pension scheme to proceed and allow similar schemes” was surely simply a reference to legislating to enable CDC, something else you’ve been a strong advocate of.

    I think this may be one of the fairly rare occasions where I disagree with your analysis!

  5. Dr Robin Rowles says:

    Rather than try and drag the Public Sector down to the Private Sector’s level shouldn’t we be dragging the private sector (kicking and screaming?) up? Too many people are getting rich at the expense of us pensioners and it is time to change. So, no shareholders dividends (yes, I know, can’t do that it’ll ruin pension scheme incomes), no directors bonuses or pay rises until ALL employees are enrolled in (2/3?) final salary pension schemes. ALL Pensions increases pegged to RPI and the triple lock. No advisors fees unless as a result of the advice the scheme returns are at least 10%. Well that’ll do for a start ……

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