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.”