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Leading questions

The Labour leadership tussle is likely to have implications for pension reforms

It is often said that gossip is the lifeblood of politics and although the party conference season is when gossip is at its most fervent, this year, it seems even more heightened, with the public wrangling over the Labour Party leadership.

The ripples from this tussle will be felt far and wide, including within pensions. We are just at the start of pension reform. The Government kickstarted the process in May with a White Paper but we have another six years, at least, until it is finalised.

With this timescale, it was always going to be the case that there would be a change of leadership but it now seems that we might be having a change of guard sooner than expected.

Tony Blair says he will be standing down within the next 12 months but the exact timing of his departure remains unclear. Many believe the most likely scenario is he will stand down on May 4 – the day after the local elections in England and elections for the Scottish Parliament and Welsh Assembly and two days after his 10th anniversary as prime minister.

There will be a leadership election, with the new leader possibly being ushered in by mid-June. At the moment, this seems most likely to be Gordon Brown but the in-fighting between the Brownites and Blairites has raised the chances of a credible contender making a challenge.

The first part of pension reform – the State Pension Reform Bill – will probably appear early next year although this could slip to mid-year. So there is a good chance that the Bill will not have completed its passage by the time a new Prime Minster takes over. Having said that, Brown’s commitment to means-testing has always been very visible in discussions about the state pension and it is unlikely that the delicate negotiations that have already taken place between the DWP and the Treasury on affordability will be unpicked so this Bill looks like going through mainly unhindered.

However, the second Pensions Bill – the one covering Personal Accounts – may not be immune. Although we expect a second White Paper on Personal Accounts by the end of this year, the draft Bill will not be published until 2008 – unless it makes an early appearance for pre-legislative scrutiny around the middle of next year. Taking into account the expected political changes, it is therefore likely that the policy will not go through in its current form.

For a start, the ministers in charge will undoubtedly change. This is hardly a radical statement when you consider the frequency of change at the helm of the Department for Work and Pensions over recent years. But with a change of leadership next summer, the current pro-Blair occupants – James Purnell and John Hutton – will almost certainly depart.

Even if the new ministers keep broadly to the agreed policy (and that is unlikely as every minister will want to make their mark), we also have the spectre of a general election. This will probably be in 2009 or 2010 at the very latest. By this stage, if all keeps according to plan, the Personal Accounts Bill should have been enacted. But the secondary legislation and the practicalities of getting reform up and running will only just be becoming visible.

If there is a change in Government, we have to hope that it will not derail the whole process.

This is exactly why political consensus is so very important. The time taken to bring in the change – from the Green Paper proposing a Pensions Commission to the first contribution to a Personal Account – will have been 10 years. But the first real pay-outs from these plans will not be for another 10 years after that.

We will have to be on our toes over the next few years as the Personal Accounts legislation in particular is only in its infancy and is liable to be changed.

Being open to political vagaries is not a pleasant position. To my mind, this only strengthens the case for pensions to be taken out of the political arena once and for all and for some sort of independent standing pension commission to be set up in future.

Rachel Vahey is head of pensions development at Aegon Scottish Equitable


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