Financial Adviser: Don't keep the faith.
Pension reform, like the poor, will always be with us it seems. Pension Acts heralding fundamental changes to our pension system used to be rarities that pension practitioners would expect to see only a few times during their careers. These days they are becoming something of a national event.
When the new Labour Party came to power 10 years ago it seemed to have a clear idea of what it wanted to do as far as pension policy was concerned. The government announced its review of pensions on 17 July 1997, very quickly after the general election. It set out nine fundamental challenges that the review would address. I suppose now, in the midst of a blizzard of pension legislation, would be a good time to look back at what has actually been achieved.
To start with, after a decade of Labour government we are not all 10 years closer to retirement. The change in the state pension age from 65 to 68 for some of us means that the last 10 years have only taken some of us seven years closer to the date that we can retire. Policy decisions such as this are clearly aimed at balancing the books of the welfare state. Pensions policy has always been an important issue for New Labour, and was explicitly mentioned in the seventh of 10 pledges about the party's aims in this government: "We will help build strong families and strong communities and lay the foundations of a modern welfare state in pensions and community care."
But matching good words to effective action is, as we all appreciate, extremely difficult. We know now that one of the first actions of the new government was to introduce substantial stealth taxes to the accumulated funds built up for private sector pensions.
With hindsight today, many people attribute the alarmingly fast decline of our private sector occupational defined-benefit sector since to this approach to taxation, but that decline was probably already inevitable following the additional generosity required of employers by the legislation of the late 1980s and early 1990s.
The seeds had been sown. The effect of the additional taxation has probably made matters worse rather than better, but I do not think it is right to say it is the cause of the decline of private sector occupational pensions. It may be right, however, to say that what has not been done is more significant. The current Deregulatory Review of occupational pensions is looking to undo some of the ties that bind employers, but it all seems a bit late in the day to me.
Tony Blair referred back to the original principles in his address to the Labour Party Conference in 2005 - one of his extremely rare mentions of pension policy - when he said: "Only a Labour government would have stopped the scandal of pensioner poverty."
This clearly related to the means-tested pension credit and was an endorsement of the overall concept of means-testing for the elderly who had been championed by the chancellor at that time and Prime Minister today, Gordon Brown.
We should not be surprised that means-testing has spread so far so quickly, it has always been a flagship idea that has been central to much of what has happened to meet the original pension pledges for most of the last decade now.
Means-testing has been highly effective at getting weekly cash to millions of the most hard-up pensioners in the UK and it will clearly continue as a main policy of the Labour government into the future.
The problem with means-testing is that while it undoubtedly helps those currently retired it acts as a disincentive to saving for those still at work at the same time.
It is a double-edged sword, of course, but we all have to accept that the government is committed to means-testing because it works today. Tomorrow is still not as high on the agenda as today, even in these enlightened times.
If future policy remains, as it is now, with means-tested benefits skewing ever dwindling resources towards those most needy in retirement, then the losers look to be those caught in the middle. These will be people who will be too rich to be classified as being poor, but too poor to be classified as being rich. They are also likely to be the losers as occupational pension schemes continue to decline.
The way means-tested support for the elderly now acts to devalue the private savings of the young at a time when employers are less inclined to back pension savings for their younger employees looks set to fast become the bedrock of a new mid-21st century pension crisis. It will certainly spawn further shoot-from-the-hip Pension Acts sometime down the line.
The second thing Tony Blair said in his conference speech back in 2005 related to this group and to this problem. He said: "In December, we receive the report of the Pensions Commission. Next year we will publish our plans for reform. There will be a proper basic state pension and alongside it, because, in the modern world the state cannot provide it all, a simple easy way for people to save and to reap the rewards of their savings."
Well, we are in the middle of that reform now, a full 10 years after those clear statements of principle. But we are also a decade further down the road to the complete shutdown of our private sector occupational pension sector and dependence on means-tested handouts is ever-increasing.
We clearly do not have a proper basic state pension, nor do we look likely to get a simple and easy way for people to save and reap the rewards of their savings. To quote from the petition for Proper Pensions that I placed last year on the No. 10 website: "We the undersigned petition the Prime Minister to drop the government's proposal to auto-enrol millions of people into a national pension savings scheme unless it can first guarantee that every pound saved in the scheme will make savers at least a pound better-off than non-savers."
The response to that petition was not a positive one. The government appears to be set on its course of reform whether or not many of those auto-enrolled into saving will benefit from their investments. What we need, I think, is a fresh approach to the problems.
We need to look again at the pension problems that face millions of us today and will face a whole younger generation in the future and we need real reform of the system so that it will pay us all to save rather than to spend.
Ten years ago people like me were saying just that. Today people like me are still saying that. In 10 years' time people like me will still be saying that I guess. And some day, people like me will be able to say, "We told you so."
First published in Financial Adviser, 6 December 2007