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Party politics

With the prospect of a possible election looming, all parties have turned their attention to the Government’s poor record of pension compensation. Will Henley looks at what this could mean for the Government

Gordon Brown has rules out a snap election but speculation has refocused some attention on the political parties’ attitudes to pensions and there are some interesting disagreements building up.

During the party conference season, the Conservatives were trying hard to put some distance between themselves and the Government and looking to capitalise on the Govern-ment’s record over pension compensation.

Shadow Secretary of State for Work and Pensions Chris Grayling held a fringe meeting at a Labour Conference, the first time the Tories have ever done so, to drive this point home and claimed that Brown’s handling of the issue of compensation for the thousands of people now without a company pension.

Grayling said Brown could not be trusted and criticised the way the Government has refused compensation for pensioners, while at the same time offering to guarantee cash savers in Northern Rock.

Grayling then stepped up the pressure on the Government by announcing his intention to re-introduce amendments to this autumn’s Pensions Bill calling for the creation of a lifeboat fund to provide immediate assistance to those who have lost out.

Grayling said: “This is not going to go away. We, along with the Lib Dems, will keep fighting. Brown does not seem to care or understand how immediate the problem is.”

Grayling’s pledge to re-float the pensions lifeboat fund threatens to undermine the already badly creaking consensus on pensions but the Tories other major pensions initiative could cause it to collapse entirely.

At the Conservative Party conference, Grayling said that if the Conservatives came to power, they would not scrap the Government’s flagship policy for the creation of personal accounts but they would get rid of the means-testing element in order to make the system work.

Grayling said: “We will not come into office and rip up everything but we will have to address the issue. We will not start from scratch and walk away from personal accounts but we will have to modify what is there to make it work.”

Hargreaves Lansdown head of pension research Tom McPhail says the cracks in the much vaunted pensions consensus have been there for a while and the prospect of an election is simply highlighting them.

He says: “They have been able to paper over them up until now. But the consensus has always been fragile at best.”

The issue of means-testing, to which the Government has been wedded, could represent a significant problem. McPhail says: “The means-testing question has not gone away. The Conservatives have been willing to play ball for a time, as a consensus is in everyone’s interests. But it is now starting to unravel.”

He says there is an underlying belief among onlook-ers that a more efficient and lasting system would dispense with pension credit system and install a univer-sal pension system. “The Government is now paying the price for not going down that route.”

Standard Life head of pensions policy John Lawson suggests the idea that a consensus ever existed is illusory. He says: “There never was a consensus. James Purnell thought there was, but he was the only person in country who did. Just because you say it enough times, it doesn’t make it true.”

Pensions will likely, once again, become a major point of contention for the different parties in the run up to an election. McPhail says: “It will be a massive election issue and one identified by Conservatives as an area they can win votes.

It is telling that David Cameron during the Tory party conference hailed as hero a man who would not take his FAS payment until all his fellow workers enjoyed the same benefit.”

The Liberal Democrats will also have their part to play in the upcoming pensions argument. The party’s long standing opposition to means testing could provide stern opposition to the Government if the Conservatives follow through on their promise to tackle means testing.

Menzies Campbell’s party have also proposed a reduction in pensions tax relief for higher-rate taxpayers, proposing a flat rate of 22 per cent for all pensions contributions.

But Lawson does not see that the LibDem’s proposals mount a serious threat to the Government’s plans. He thinks the party’s proposals risk alienating the demographic the Conservatives are trying to wrest from them and their proposals are unrealistic.

He says: “It is all very well to come up with sound bites, knowing that you won’t get into power. They will act as a thorn in the side for the Government but, other than on the means-tested issue, there should be little opposition from the LibDems.”

The battle lines may be drawn, but the Pensions Bill scheduled for this autumn is unlikely to be lost, despite the prospect of LibDem and Conservative opposition, believes Lawson.

He says he does not think arguments such as those over means testing will cause problems for the Government at this juncture.

Lawson says: “The Bill will look at the mechanical aspects of personal accounts, such as the awarding of contracts processes affecting the delivery authority, rather than means testing. The Government have a strong enough majority not to be derailed.”

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