Guy Opperman now enjoys the prospect of becoming Britain’s longest serving pensions minister. I hope that he and his team get to read from me and others, that we can have a fairer, more inclusive deal for those in later life, by working together – private and public sector as one.
Aligning pensions with our environmental goals
Last week also saw an amendment to the budget, announced by Teresa Coffey that puts pensions at the heart of the Government’s ambitions to curb the impact of climate change.
I don’t think the Pension Schemes Bill amendment an “unwelcome innovation”. If we are to be at the centre of the agenda, we need to be working with Government to ensure the £2tr of assets we control contribute to the UK’s climate change targets. I hope that others will say the same at the PLSA’s investment conference next Month in Edinburgh. We should remember that only a few months later, the world will meet in Glasgow for #COP26.
It is for the PLSA to back down on its objections to the amendment and for Government to ensure it is working with the pensions industry on this – not against it.
Aligning state benefits with our social goals.
There is consensus between all parties that the societal impact of pension policy must be to provide everyone with a reasonable income in retirement. During the week we heard good news about the state of our National Insurance Fund which I hope will lead to the extension of the “triple lock” on state pension increases – at least until the end of this parliamentary term.
There are still hard issues to address. They include the issues of the WASPI women which await the verdict of the Parliamentary Ombudsman. The current surplus in the National Insurance Fund could only cover around 10% of the cost of Labour’s election proposals, a full retro-fitted solution would cover a lot more than £87bn. I don’t see the WASPI issue as done – because there is no effective opposition. The wider issue is (as John cogently puts it) – what #WASPI solution do we support.
There are other issues arising from the Cridland report, mortality – happily – continues to improve (eg we are living longer) and we need to address not just the issues of when we draw our pensions , but the availability of work for those who haven’t saved enough to stop working.
And we need to keep looking at how the pensions we are entitled to, interact with benefits under pension credit. We cannot have cliff edges where people fall off benefits because they were unaware of the consequences of their financial decisions.
If our social goals are to be fair to everyone in later age, we need to find new ways to deliver the guidance to those who don’t participate in the benefits of private pensions.
I was careful there to neither use “inclusion” or “exclusion”. We need to treat later life poverty in an apolitical way , accepting that much of it is self-induced but accepting that deprivation in old age is unacceptable to us.
Getting our later life health issues funded
We cannot go on for ever, believing that taxation can meet the rising cost to the NHS and local authorities of the detoriating health of older people.
We put too great a burden on those who come behind if we do. The Baby Boomers are a bulge in population and also in prosperity. We need to accept that we need to meet our own bills when we can. I support a system of pre-funded care and I think insurers such as Legal and General , who are looking at immediate care annuities are on the money.
We need to start thinking much earlier how we protect our children from us becoming a burden on us as well as finding ways of capping the costs of long term care for those already in the final stages of their lives.
I look to Government to work with the private sector on solutions to this. There is plenty of t work being done by academics, charities and by the NHS DOHand DWP, but we need to see a national plan emerge.
Bringing private pensions to the party
The vast majority of private pensions wealth is concentrated in the hands of a relatively small part of the population. If you exclude the great unfunded pension schemes run by government, second pillar pensions in this country (whether DB or DC) are a “rich man’s game”.
But they still account for more than £2trillion pounds of money currently invested , mostly in the UK. As mentioned above, this money is some extent social capital and a large part of it can be accounted for as “tax-forsaken”. This is why the Government has every right to intervene in its management.
Government has also got every right to determine how the £40bn of tax and national insurance it forsakes each year, is distributed. It is not a subsidy for the pensions industry, nor is it there to preserve the current status quo.
Where the tax-system creaks (as it does with the Annual Allowance and its taper) then some maintenance wok is in order. But if, once peaking behind the immediate symptom , the diagnosis is that there is a more fundamental issue with pension tax relief, then more radical surgery will be required.
Less subsidy – more incentive
There is an argument that we need to reduce the £40bn subsidy to pension savings. I think that argument ties in with the need to redirect money towards sorting out the issues we have with long-term care. I would support a reduction in pension tax-relief if it meant we dealt properly with the cost of social and medical care for the elderly.
There is another argument , which is no less pressing, that the money we allocate to incentivising those who need to save is actually subsidising the saving of those who don’t.
I would support moves to a flat rate TET system (with proper incentives) or a full TEE system (with proper transition). I do not think the current EET system is sustainable. Though it looks good in principle (David Robbins), in practice it is delivering 50% of the cost of pension tax-relief to 10% of people who need it most. The current system needs radical change.
A radical pensions agenda
I have found myself – without really meaning to – writing my own manifesto for change. I have a right to dream and – as one of the lucky ones who is well pensioned – I feel I have a responsibility to those who aren’t. This is my father in me.
I also have the means to pursue a dream of delivering the support to those of my age, so they make the right decisions on how to organise their later life finances. This is what I intend to do with AgeWage.
That right to dream of making a difference is something that I hold dear and it’s something I discuss with my small team and the wider team of advisers who help AgeWage. I hope that very soon we will be able to put some of our grand ideas into action and I will be writing a lot more about this in the next few weeks.