The UK’s five-year parliamentary terms are inconsistent with the long-term view required to create a proper pensions strategy. What will happen if the incumbent coalition is replaced by a different political concoction in a few months’ time? Do we start to build another plan or tinker with the one in place? I believe we have a better chance of achieving long-term stability in our pensions system if we have greater stability in our strategy.
Pension policy could become even more of a political football as an ageing voting population gives pensioners greater voting power. I don’t believe any government would be able to resist increasing unaffordable state pension benefits as a result. Policy designed to be popular and win votes does not normally benefit the country in the long run.
Pensions policymaking has been a common feature of the current coalition government. Since 2010 it has introduced or proposed triple-lock increases to state pensions, auto-enrolment, reformed pensions taxation, a single tier state pension and ‘freedom and choice’ announced in the 2014 Budget. Like or loathe these changes, they form a foundation on which we can build.
Steve Webb - who has been the longest serving Minister of State for Pensions to date - has shown just how much can be achieved with a little stability. Since the post was created in 1988, no incumbent had lasted longer than two years in the role, resulting in bit-part policies and creating a fragmented system, so I welcome this new-found continuity.
Despite the progress made in the last few years, it is evident that pension policymaking is still party political. Take the ‘freedom and choice’ changes announced in the 2014 Budget. The measures are so revolutionary that retirement saving may never be the same again; the very notion of a pension may become obsolete. And yet these drastic changes are being implemented within just a year. Some of the biggest changes to the pensions landscape for over a decade are being rushed through before the general election, as a tactical sweetener for voters.
I have concerns, which are shared by the industry, over this hasty implementation. While providers have been scrambling to create new products, pension schemes are still some way off the pace. The National Association of Pension Funds (NAPF) recently outlined an “urgent need” for more clarity and guidance.
Pensions policy instead needs to be made with long-term economic and social factors in mind. The pensions conundrum is challenging enough already. There is no place for accelerated taxation to fund the latest giveaway or ‘policies for the people’.
The answer is to remove long-term pensions policymaking from the political fray. It should be made by a body independent of political control, akin to the independence granted to the Bank of England over monetary policy. This would free decision making from the constraints of a five-year political term. While the makeup of the independent body – its roles, responsibilities and authority – are up for discussion, only this kind of organisation will be able to take the tough long-term decisions and create the more progressive pensions policy we desperately need.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.