Former Labour Chancellor Alistair Darling has attacked the pension tax relief system, fuelling speculation that the party will seek fundamental reforms if re-elected.
Earlier this month, Labour’s former Shadow pensions minister Rachel Reeves urged the Government to look at ways to make pension tax relief “more efficient, more effective and better value for the taxpayer” in incentivising people on lower incomes to save.
Speaking to Money Marketing at the National Association of Pension Funds’ annual conference in Manchester last week, Darling says the system is skewed in favour of the rich.
He says: “The big problem with pension tax relief is that the lion’s share goes to the people at the very top. That was not what was intended when the legislation was introduced.
“There is something very wrong there because the fundamental problem with pensions is that people on lower incomes are not saving, not the people who can well look after themselves.
“Of course, the way it operates is something that will be looked at on many occasions. I think if you were starting from here with a clean sheet of paper, you would not come up with a system where the people who get most of the money are the ones who had it in the first place.
“You would be wanting to help the people who you need to get into the pension system.”
Reflecting on Labour’s record on pension policy during 13 years of Government, Darling, who is MP for Edinburgh South West says: “I think stakeholder was initially quite successful, although the introduction of Isas probably damaged it because they are much, much easier to operate. The problem is there has been too much chopping and changing of policy.
“In relation to pensions, it is terribly important that we stick to the consensus. If people think the rules are going to change or the options are going to change, then they simply will not do anything.”
Darling says automatic enrolment, a key plank of the pensions consensus, must go ahead as planned as Government ministers consider providing further easements for small employers.
However, he says the Treasury will need to devise a “credible” plan for economic growth in order to prevent large numbers of opt-outs as the regime is rolled out.
He says: “Of course, the Government is thinking about delaying auto-enrolment in terms of the cost to employers and the potential saving to the Treasury but they need to press ahead.
“But it should not be overlooked that if the economy does not start growing and the Government does not produce a credible plan for growth, then take-up will inevitably be affected.
“Trying to tell people to save when every last penny is being spent on day-to-day necessities will be very, very difficult.”
When auto-enrolment is fully rolled out in 2017, the Department for Work and Pensions estimates up to 10 million savers, many of whom will be low to middle-earners, will join the pension system.
Darling says policymakers and the pension industry will need to ensure these people are able access financial advice and information.
He says: “There is a general problem that not enough people are getting decent advice because most people do not go anywhere near IFAs. By their very nature, IFAs will go to an audience that is willing to engage.
“What is needed is to increase the general level of awareness to a sufficient level so more people seek out professional advice in the first place. Where they get that professional advice from, whether it is an IFA or a provider, is of less importance to me.
“The real problem is whether there is sufficient financial knowledge and awareness among the population about financial issues. The answer at the moment is an emphatic no.”