Former Tory Shadow pensions minister Nigel Waterson has likened the Government’s decision to switch from RPI to CPI indexation to Gordon Brown’s raid on pension funds in 1997.
In an interview with Money Marketing, Waterson reveals the decision was never discussed during his time in opposition, indicating that the move was pushed through by the Treasury as a means of cutting costs. Figures from the Department for Work and Pensions suggest the change in indexation will cost members of defined-benefit schemes £85.9bn.
Waterson says: “I was not involved in any discussions in opposition about switching to CPI. This seems to have come straight out of the Treasury. I can see the economic logic to it but I think there is a comparison with Gordon Brown’s raid on pension funds in 1997. Nobody really understood the effect it was going to have on pensions at first but in the end people went out demonstrating on the streets.”
In Labour’s first Budget in 1997, Chancellor Gordon Brown axed advance corporation tax relief on dividends for pension schemes, creating an industry outcry and predictions that the move could cost pension funds up to £100bn.
Waterson, who will become a trustee of Danish pension firm ATP’s pension super-trust when it launches later this year, also criticises the pace of change as the pension industry struggles to cope with a wide range of Government consultations.
He says: “There is a danger of announcement fatigue. People feel overwhelmed by the number of announcements, initiatives and consultations that have been happening at the same time. It is almost like the coalition is a man riding a bicycle and they think that as long as they keep pedalling, they are not going to fall over.”
Last week, Money Marketing revealed Treasury officials were unlikely to go ahead on allowing early access to pensions due to concerns over lack of evidence about benefits to consumer reforms, although policymakers remain open to ideas on how to make savings more attractive and flexible.
Waterson says Treasury financial secretary Mark Hoban had shown little enthusiasm for allowing people early access to their pensions during his time in opposition.
He says: “I will be fascinated to see what the Treasury come up with but I suspect they will be lukewarm on the whole subject. I had discussions with Mark Hoban about it in opposition and quite rightly he pointed out many of the practical problems. I would be amazed if the Treasury were not still equally sceptical about it.”
Waterson insists that ATP’s low-cost pension offering, which will be a collective defined-contribution scheme similar in design to the super-trust model put forward by the National Association of Pension Funds last year, will not present a threat to Nest.
He says the firm will look to appoint a UK-based administrator for the scheme but investments will be managed from the company’s base in Denmark. ATP is moving to bigger offices as it gears up for the launch of the scheme this year.
Waterson says: “It is going to be a super-trust model similar to the one the NAPF were pushing out after the Turner review although there is still a lot of detailed work on the legal side and how it is going to operate.
“ATP have a track record achieving returns of around 7 per cent year after year at very low cost and they have got nearly five million members in Denmark and 160,000 employers, so they are used to doing it. But we are not in the business of competing with Nest or raining on their parade. There is plenty of space in the arena for all sorts of people.”