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‘Index switch has weakened the pension promise’

Labour Shadow pensions minister Angela Eagle has criticised the financial services sector, saying it only deals with people in the top 20 per cent of the income scale.

Speaking to Money Marketing, Eagle says the industry must engage with the mass market. She says: “You cannot have a financial services structure that only gives services to the top 10 or 20 per cent of people in the income scale while everybody else does without.

“Think about all the millions of people who could be given a financial service if financial services structures ever addressed them. It is a damn sight more than the tiny number of people at the top who get financial services at the moment.”

Eagle is critical of the coalition Government’s decision to link rises in payments to the consumer price index, saying it will wipe £1.2bn off the basic state pension over the next five years.

Pension payments are currently calculated using the retail price index, which includes housing costs such as mortgage interest payments, but the CPI, which is typically a slower-growing index, does not.

Eagle says the Government’s decision has damaged the public’s trust in the pension system. She says: “The new Government has weakened the pension promise, which makes it hard to persuade people to save. The decision has wiped billions of pounds off the real value of people’s accrued rights and their savings that they thought they would have and could look forward to.

“Couple that with talk about a rapid increase in the retirement age and I think it makes people very cynical as to whether they will ever get the pension benefits that they are being asked to save for.”

Work and Pensions Secretary Iain Duncan Smith defended the CPI decision in his first session with the Treasury select committee last week by saying that pensioners usually own their own home.

But Eagle says: “I do not know what world he thinks he is living in. Official figures show that 70 per cent of pensioners do not have housing costs but that means 30 per cent do. I just do not see how they can justify it, except as a Government saving, which is what it is.”

Eagle joined the Labour party in 1978 at the age of 17 and in 1992 she was elected as MP for Wallasey. In June 2009, she was appointed as minister for pensions and the ageing society in the Department for Work and Pensions.

Duncan Smith told the Treasury select committee last week that he wishes something had been done sooner about the lack of pension provision in the UK.

Eagle counters by saying that while it was clear when Labour was in power that something needed to be done, it takes time to reach a consensus on pension policy.

She says: “It was clear that we needed to do something that was either compulsory or involved auto-enrolment but with pension policy it takes time to build a consensus.”

Eagle defends Labour’s 82 per cent tax on death benefits, saying it only affected a small, wealthy minority.

She says: “Why are you so interested in the very tiny number of people who can save large amounts of money in pension savings and then wish to pass it on to their relatives for inheritance purposes, when millions of people do not have any pension savings at all?

“It is them you should be worried about, not the tiny number of very vocal people that want even more loopholes in tax structures so they can salt loads of money away with beneficial tax purposes and then pass it on to their kids.”

The National Employment Savings Trust was set up under Labour to increase the rate of long-term saving among low to moderate earners. If Nest survives the Government’s comprehensive spending review next month, it will automatically enrol people into a pension with guaranteed employer and Government contributions.

Eagle predicts that Nest will become “a loved part of the architecture in the UK” and downplays widespread concerns over means testing.

She says: “Ninety-five per cent of people in this system will make gains and only a very small proportion of people will have fallen into the means-test trap that everybody worries about.”

Eagle says some people will choose to opt out of Nest but a compulsory savings scheme would not have been a reasonable approach.

She says: “You cannot stop people from opting out but you can try to persuade them it is rational to stay in the scheme and I expect Nest would do that.

“We would have produced a system that required compulsory savings if we thought it was reasonable but there are some points in people’s lives, perhaps when they have had kids or just moved somewhere new when they just do not have enough money to save.”

Asked whether the retirement age should be raised to 70, Eagle says any increases must be phased in over a long period.

She says: “I think one of the key things in increasing the retirement age is that it is done with plenty of notice. Do I think we should get rid of fixed retirement ages and have more flexible methods of retirement? Of course, I do.

“But I notice that many of those who say they would be only too delighted to work into their 70s are people who have office jobs, policy jobs, jobs in the financial services sector, dare I say it, who can go off and do a little bit of consultancy as they wind down into their retirement.

“They are not getting up at 6am and going to work on a road gang, or climbing poles to mend our telephone wires or cleaning in the middle of the night, so I think we need to be sensible about these things.”

Another element of pensions under review by the coalition is the requirement to annuitise by age 75. Eagle says she is concerned that the Government’s plans may help a small number of wealthy people avoid paying inheritance tax.

She says: “It affects people who can afford to live 10 years after their normal retirement age without touching their pension savings and we have to be careful that this is not just a way of avoiding inheritance tax.

“I do not mind flexibility with annuitisation within a certain boundary but I think we have to realise that the vast majority of people cannot afford to live 10 years after they retire and not touch their annuities.”


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. RDR will probably mean only the top 10% of people will get advice.

    “Eagle says the Government’s decision has damaged the public’s trust in the pension system”

    WHAT!!???, Excuse me!!! Doing away with reclamation of tax credits ring any bells????

  2. She has a cheek when it was her Government that introduced the FSA, and now they are railroading RDR through.

    It is just not cost effective to give someone advice on low pension premiums because of all the regulatory issues that go with it.

    If we could do a simple process which did not involve time consuming reports, research etc, and allow us to take commission on this then maybe just maybe it would be viable.

    Perhaps she will put her efforts into getting the FSA to change its tune, and allow us to do basic advice with low overheads.

  3. Does she not realise that the other 80% either can’t afford to put anything away for their future, don’t trust greedy governments to keep their hands off their money or just think what the hell the state will look after me anyway.
    It is the fault of politicians that people don’t trust or utilise pension plans correctly. If they made legislation simpler, stopped changing it every time they need more revenue and ring fenced what people have set aside for their future so that it doesn’t reduce any entitlement to state benefits for the less well off we would see a different picture. And on the subject of IHT on pensions, it’s not your money get your greedy hands off it and allow any unused funds to pass to the next generation. You’ve got LTA legislation in place so given time you will get your tax take and the more we have in pensions the less likely we are to rely on the state. If MP’s and Civil Servants had to rely on personal pensions instead of their gold plated schemes which we pay for I’m sure we would see a completely different set of regulations in place.

  4. It is astonishing that Labour still do not understand pensions and the provision of financial services. Under Gordon Brown the approach seemed to be to beat someone over the head and then ask why they have a headache. Ros Altman made a very clear analysis of what is wrong but sadly was not listened to. Let me start by asking why is it harder to take out a pension than it is to take out a credit card? Which transaction is of greatest benefit? Once you understand that you will start to get to grips with what needs to be done. If all plans are licensed by the FSA then they should be able to be sold to anyone the FSA classes as ok. Don’t get so concerned about the 1% of bad sales as by doing so you act like a dead hand on top of business. It stifles it so that advisers will only do the bigger cases. This is because you may as well be hung for stealing a sheep as a lamb.

  5. I have a cutting at home – a statement made by Angela Eagle, who wanted a fee only environment to cut out bias towards commission. Commissions were often used to offset costs to a client within their contract. where higher rates than normal were available. The client now has to pay 100% of the costs of a contract either by cheque or from their contract and most cannot afford to or want to. It was obvious when she made this statment some years ago that the change of charging structure would result in people at the top obtaining the advice. She thought it was unfair that business income from that sector should help fund those with lower income/investment. Stakeholder was introduced to help the masses but the provders could afford to run them. As for Inheritance tax, is 82% tax on Alternatively Secured Pension fair to anyone ? What did she expect. What a U turn. I am flabbergasted.

  6. Dear Ms Eagle

    As an IFA I was able to offer my services to 100% of society, it wasn’t very profitable but running a social service never is. The regulatory burdens and cost associated with the provision of my advice rose to the level that precluded more and more of those I was happy to educate in any way I could.

    You may remember the statement HMT made about IFAs taking 40% of all life industry costs in commission, you may also remember my submission proving this was not so.

    If you and your political colleagues want more people to receive advice you need to do something about regulation, it has failed to meet the reasonable expectations of the nation.

  7. What planet is this women on? Government after government has introduced more complex and more expensive regulation. The reason a reducing number of people can access advice is because people like her have made it so.

    She says: “Why are you so interested in the very tiny number of people who can save large amounts of money in pension savings and then wish to pass it on to their relatives for inheritance purposes, when millions of people do not have any pension savings at all?

    Couldn’t make it up could you. It may not have been a perfect world but it’s the politicians who brought about the demise of home service and direct sales and are now with RDR driving even more IFA’s out of business that’s why only a minority can afford financial advice. Might also have helped if her glorious former leader had kept his mits out of the pension till.

  8. Angela Eagle has criticised the financial services sector, saying it only deals with people in the top 20 per cent of the income scale.

    My dear Angela – go read the RDR proposals that Crash Gordon and your New Labour Cowboys started off. Following RDR it won’t be the top 20% it will be the top 1% – the rest will be handed over to the bank!

  9. And they said she was one of the more intelligent ones.

    i genuiinely hope that all advisers in her constituency will take copies of the RDR and go to her surgery.

  10. Ms. Eagle ~ a very large part of why pensions in the UK are in such a sorry state and with them public confidence (increasing longevity is nobody’s fault), is because of what your lot did over its 13 years in office.

    Your comments sound to me like nothing more than hypocritical stone-throwing from the opposition benches.

  11. I have been an IFA for nearly 20 years and have never restricted my advice to anyone. But as regulations and red tape have grown and now with RDR it will become increasingly difficult (perhaps impossible) for me to provide a service to anyone who cannot pay. I would have to admit that there has been some cross-subsidy over the years whereby my earnings from wealthier clients has enabled me to provide a ‘social’ service to those clients who I might never actually earn a penny from. It is RDR and political interference that has and will deny good advice to those that might, actually need it most. But then, whilst this Eagle woman castigates the Financial Services Industry, she doesn’t tell the truth that the government would rather most people didn’t have access to good advice since many low paid people would then see through NEST and other such scams. And, of course, Vince Cable thinks anyone avoiding tax (by legitimate means) should be likened to a benefit cheat. And what if the poor people are made aware of benefits to which they might be entitled but not claiming.

    I though that it was only snakes and confidence tricksters that had forked tongues but obviously Eagles do (and most politicians do) also.

  12. …the tiny number of very vocal people that want even more loopholes in tax structures so they can salt loads of money away with beneficial tax purposes and then pass it on to their kids.”

    Blimey. I wasn’t aware we were living in a socialist state! Why the devil can’t people save money (that they’ve already paid tax on) and pass it on to their kids? Can someone please explain to me why that is such an evil, selfish act? Why is one set of circumstances ‘saving hard’ for retirement and one ‘salting away’?? What two faced hypocrisy! What level of income/savings creates the change from one to the other I wonder? Heaven forbid you shouldn’t be a ‘salt of the earth’ road builder – anyone else is just a cynical tax dodging money grabber. Hmmm. I agree with one of the comments above -it’s not your money – keep your greedy mitts off! And stop changing the rules under which people are saving to benefit yourselves!!

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