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Desperate Government in pensions denial

Pensions minister Angela Eagle’s interview with Money Marketing at last week’s Labour conference in Brighton was typical of a Party lacking in ideas and resigned to relinquishing power.

At a time when many in the industry are examining innovative ways to deal with increasing longevity and low savings rates, Eagle’s blinkered defence of the current reforms and rejection of any hint of a new idea sums up a Party ready and waiting for the Opposition benches.

Aside from a lazy and ill-informed attack on financial advisers (apparently the main reason why people are cynical about saving into a pension), Eagle hits out at the industry for ignoring lower to middle earners.

No admission that the regulatory machine created by New Labour is a major reason why firms have found it unaffordable to service lower earners. No mention of the stakeholder disaster or the fact this Government has failed over the last 12 years to put together any kind of coherent strategy to improve savings rates. In fact this administration’s long list of botched meddling with the pensions system is probably one of the biggest reasons why people have been turned off saving.

A sign of a desperate politician is when they blame the media for their woes and this certainly seems to be the case whenever a Labour minister speaks on public sector pensions.
Ignoring the growing resentment to public sector pensions shows again how out of touch this Government has become. A recent You Gov/Money Marketing poll of IFAs reveals 85 per cent believe there needs to be a fundamental reform of public sector pensions and concern is growing amongst the general public.

Eagle says this growing resentment is simply stirred up by the media and defends public sector pensions, suggesting they affordable and that any reform would hit low paid workers. No mention of fairness.

The issue of public sector reform may be more complex than many headlines suggest, with a range of partially funded and unfunded schemes and a large number of those in the sector on low wages.

But at a time when the Government is calling on private sector employees to contribute more towards their own retirement it is surely wrong for the taxpayer to continue to fund many public sector pensions without serious questions being raised.

Eagle points to the fact that the average pension income of a public sector worker is £5,000. In her words “not a King’s ransom”. It may not be a King’s ransom but it is a hell of a lot more than the average worker gets. A pension income of £5,000 would require a DC pension pot of around £100,000 yet most industry estimates suggest the average pot is currently less than £30,000.

It appears it is the minister rather than the media that is trying to confuse the issue by playing with figures. A Turner-style commission to investigate public sector pension reform is urgently needed rather than the current stonewalling of the issue from a Government in denial.

It also seems ridiculous that the Conservative Party was not consulted before the Department for Work and Pensions decided to delay auto-enrolment into personal accounts for certain people. Considering the current state of the opinion polls it is likely the Tories will be in charge of the Country when the personal accounts scheme is introduced. It is they and not Labour who are likely to take the blame or credit for personal accounts (few people blamed Michael Heseltine for the Millennium Dome). Again this refusal to consult the Tories on such a fundamental change to the scheme smacks of a Government in denial.

After making his final pension commission recommendations, Lord Turner raised concerns that the reforms would be introduced in 2012 rather than 2010 -therefore lowering the eventual pots of many savers. The fact many individuals will not start receiving the full 8 per cent contribution until 2016 asks more awkward questions about the reforms.

The Government’s lack of imagination around pensions has allowed the Tories to steal quite a march – they listened and acted on Lord Turner’s recent worries about the state retirement age while Shadow pensions minister Nigel Waterson’s focus on more flexible retirement solutions is very encouraging.

Speaking at an industry event this week, Eagle responded to concerns about public sector pensions and other matters by suggesting the Country needs a new media. Listening to Eagle’s views on pension reform perhaps a new Government is a greater priority.

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