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Cicero Labour blog: Govt still not telling the truth on pensions

As a veteran of many Labour Party conferences, it never feels like I’ve arrived until I have suffered my first pensions fringe meeting. Pension reform might not be centre stage this year but, oddly enough, the debate is more important now than it has been for many years.

With signs that the political consensus on personal accounts is starting to crack, and the looming funding crisis over final salary pensions in the public sector, pensions threaten to be a highly saliant issue at the next election.

In a fringe organised by B&CE, Angela Eagle, the pensions minister, did her best to draw the battle lines. However, her words revealed a government seriously in denial. While she acknowledged the controversy over public sector pension schemes she turned her face to the past, stamping out any suggestion that reform was on the government’s agenda. Eagle argued that while 85 per cent of public sector workers are currently covered by final salary schemes, this produces an average pension of around £5,000 per year. Final salary schemes are, we were informed, affordable and sustainable. Attacking final salary schemes was another example of the Tories looking to make ruthless cuts.

While there are legions of people who beg to differ that public sector pensions are affordable – not all of them on the Tory frontbench – it was interesting that the minister failed to make any mention of equality and fairness. Usually, Labour ministers can’t help themselves. Previous pensions ministers often reminded conference that any pensions system needs to be seen to be fair in order to be sustainable.

Yet here we have a government presiding over an almighty inequity. For what those in the public sector can expect to receive in retirement courtesy of the taxpayer, those in the private sector will have to save in personal accounts out of their own salary. On this point, surely Angela Eagle must be the only person in Britain who thinks this is fair?

She is appears to be alone in thinking that the average private sector worker targeted by personal accounts can hope to generate levels of private pensions equal to what a public sector worker will receive from a final salary scheme. True, £5,000 per year might not sound like a lot. But at current annuity rates it will involve the average personal accounts saver accumulating in excess of £100,000 over the course of their working lives. This is five times the average annuity today. And remember, personal accounts will be targeted at low and moderate earners; part-time workers and carers taking long breaks from employment. Not the kind of people who save regularly over a 40-year period.

With so many siren voices sensibly cautioning the government to manage people’s expectation on personal accounts, it would seem the government is more intent on throwing caution to the wind. A personal account – while better than nothing – is no substitute for a final salary scheme. Government ministers should be wary in creating the impression that people can expect similar outcomes. Quite apart from the differential levels of employer contributions, the minister made no reference to the fact that those in personal accounts will be expected to shoulder all the investment risk while enjoying little or no access to financial advice to help them make sense of those risks.

If the government wants to defend its well-earned consensus on pension reform, or build a truly affordable and sustainable pensions system, it still has a lot of work to do. More honesty would be a good place to start.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Labour hypocrisy.
    It seems Ms Eagle has both a poor grasp of the current facts and has also forgotten that it was Gordon ‘BB’ (Big Brain) Brown’s attack on ALL pensions in the Private Sector, when he elected to tax the pension funds. In just ten years this has lead to the demise of our once internationally admired private sector pensions funding system.
    We now have a situation where the massively expanded (under G’BB’B) Public sector demands ‘pay parity’ with the Private sector and then also expects that Private sector to create sufficient wealth to provide for it’s index linked final salary schemes. Whether they should have ‘pay parity’ is for another debate.
    ‘Ruthless Cuts’? No I suggest that Ms Eagle does a reality check!
    On the other hand if Ms Eagle is so adamant that Public Sector pensions are indeed that ‘affordable and sustainable’ then perhaps she should look at and re-publish the figures the Govt’s. own Civil Servants produced about the billions of £ needed in future. The Treasury could then tell us how much our taxes will have to go up to pay for them.
    At the coming election the ‘Great British Public’ can then decide what we want to do, which may mean she doesn’t have a job by July 2010, thus relieving us of the need to question her sanity. Self serving Party Political comments such as these only muddy the waters of what is a much too serious a subject for such partisanship. If she actually believes she is correct then she is obviously not up to her brief and should go! In either case she is in the wrong job and so should go!
    I suspect we shall hear a lot of similar Labour pronouncements over the next few months, purely designed to make life as difficult as possible for any incoming Tory Govt. rather than being promoted as serious policy.
    In party political ways this could be a good election for the Tories to loose, just so the mess Labour (the ‘New’ prefix seems to have been lost by GB) has got us into comes fully home to roost.
    From day one I always suspected G ‘BB’ B was an ‘Old’ style Labour ‘Tax and Spend’ Chancellor. If he were to be re-elected he could also be a Tax and Spend PM with no equal.

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