Labour’s National Policy Forum has been consulting on its policy
document A Modern Welfare State. The section on "dignity and security for
every pensioner" acknowledges that the pensions system must be sustainable in the
long-term, creating a durable framework for today’s workforce to plan ahead.
Unfortunately, there is no acknowledgement that Government policies are unlikely to
fulfill this crucial requirement. Since 1997 reviews of the
welfare state have come and gone but, under the influence of Gordon Brown, policies have
largely developed in a piecemeal way with no consistent principles. The Chancellor is now
remodeling himself as the heir of Bevan on the back of the welcome increase in funding for
the NHS. Yet the logic of his position that a universal, publicly funded NHS is the most
modern and rational policy is not reflected in policies on long-term care and increased
means-testing in the social security system.
Following the debacles over lone parent benefits and the 75p pension
increase, the Government did at least realise it had to make amends. Families with
children and pensioners have benefited greatly from extra spending but the system is now
so complex as to be vulnerable to erosion of benefits by less generous future Governments.
Experience under the Tories, for example over SERPS, tells people they cannot feel
confident in a system they cannot understand.
Despite the Prime Minister’s statement in Question Time on 20
October 1999 that "we are well on the way to formulating the right framework for
pensions in the future" the pensions system is today seen as being in crisis. Final
salary occupational schemes are closing and successful fight-backs by trades unions are
only helping existing employees. Personal pension schemes are largely discredited as a
result of mis-selling and other failings of pensions providers like Equitable Life. If
nothing changes, in 2050 even more people than today will be retiring with a pension that
is less than the means-tested minimum income guarantee (MIG, being renamed Guarantee
Credit). The combination of the State Second Pension (SSP), no longer earnings-related,
and the basic state pension (BSP) will have a lower value as a proportion of average
earnings than the BSP alone when it was linked to earnings.
Neither the Pickering nor the Sandler reviews have come up with
ideas that will allow the Government to come anywhere near achieving its aim of reducing
the proportion of pensioner incomes coming from the State from 60% to 40%. (Though the
flexibilities proposed by Pickering may help good occupational schemes to survive during
the current period of low investment returns.) In any case, that target is purely
arbitrary and, when challenged in Parliament, Government ministers can give no logical
justification for it. We know that the affluent will always provide for themselves well in
excess of state provision so the real task is to ensure that the interaction between state
and private provision is such as to encourage those of modest incomes to save more.
One way of getting more people to save would be to make pensions
savings compulsory but the Government was always reluctant to make Stakeholder Pensions
compulsory for its target group of workers because of the lack of guarantees on
performance which might invite accusations of mis-selling and value-for-money comparisons
with state provision.
Instead we should recognise that it is essential to remove perverse
incentives to save within a system that people can understand. This will require a basic
pension set at least at the level of the MIG. Such a move would do away with the need for
the Pensions Credit and flat rate SSP, simplifying the system at a stroke. Proposals to
achieve this at no extra cost than in Government plans, provided the official retirement
age is increased to 67 by 2030, were put forward by the Institute for Public Policy
Research but were immediately rejected by Alastair Darling. Since then, however, further
support for a more generous state pension has come from Tom Ross’ Pensions Policy
Institute and pension advisers like WatsonWyatt and Mercer. We also have a new Secretary
of State, Andrew Smith, who has spoken of the incomprehensible maze of current policy.
Smith has promised a Pensions Green Paper soon and this must surely
be the last chance for Blair’s Government to bring some confidence into the pensions
system. After the Labour Party Conference, boldness is apparently the order of the day.
Sometimes the bravest action leading to the best outcome just requires a willingness to
admit to past mistakes.
Lynne Jones MP
October 2002, for Pensions Management Magazine
|