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Phil Young: Insurmountable challenges to common-sense pensions policy

Commentators are often seen calling for an end to pension tinkering but the problems run deeper than that

Every night, when he goes to bed, AJ Bell senior analyst Tom Selby dreams of becoming pensions minister. “Stop tinkering with pensions,” he whispers to himself. Selby’s ascent to a junior ministerial position is based on two simple policy principles.

First, set up an independent commission to oversee pensions policy, and second, stop tinkering, whatever that means.

The two are supposedly connected. There are a number of obstacles in his way.

Status issues

For a start, the status of pensions is too low. The job the Bank of England does looking after interest rates is the most cited example of the governance structure that should be set up for pensions policy, as it is “too important” for politicians.

But controlling interest rates is what most Western countries consider to be the single most important tool to manage global and local economics. It’s pretty high on the priority list.

Indeed, important policy needs such as long-term care (the survival of an ageing population) or climate change (the survival of the human species) remain subservient to current economic policy, so what hope pensions?

Former pensions minister Steve Webb and his shadow Gregg McClymont were mowed down in their political prime by the collapse of the Liberal Democrats and Scottish Labour respectively in the 2015 election.

Since then, the position has been passed around reluctantly like a mouldy – rather than hot – potato.

The lack of interest in it belies how little political importance it is given as a title, and in turn how little the public are politically motivated by pensions policy, beyond small pockets of self-interest.

As Women Against State Pension Inequality detractors correctly point out, state pensions are a state benefit, not personal savings, and personal pensions could equally be viewed as a tax relief like any other.

Changing this view is not an insignificant task and automatic enrolment probably plays a pivotal role in it.

The chancellor announcing meaningless changes to beer and cider duty each Budget highlights the difficulties of shifting attention to long-term issues.

Democracy

Second, if pensions are about tax relief (and as collectivism disappears, this is surely the direction of travel), then why wouldn’t they be in the control of the same democratically elected party which sets all other tax reliefs in an annual Budget? Why would pensions get special treatment? What other model could exist?

Phil Young: What can advisers learn from robos’ moral codes?

In ancient Athens, where democracy was invented, they chose their government by lottery rather than a vote – a method called sortition. Elections (populists take note) were considered to be an aristocratic mode of creating an elite political class. Indeed, aristocracy means “rule by the best”.

In Athens, sortition meant public officials were selected at random for almost every major political institution, in much the same way that jury service works now.
Philosopher Alexander Guerrero has advocated this approach for modern democracies, using a number of single-issue legislatures rather than ministries.

In Guerrero’s “lottocracy”, these officials would not be required to follow the interests of a party or locality, and be given the time, financial security and a whole team of expert advisers to develop a real understanding of their subject, unlike current ministers who move departments too frequently to develop a depth of understanding.

The idea of selection at random sounds daft but we have used it successfully for years to create juries representing a broad cross-section of society. Short-term politics would be taken out of everything, not just pensions. Sortition would give Selby what he wanted but he would have to dismantle the entire UK electoral system to achieve it.

It may take a while and it might, accidentally, fall into tyranny.

Tinkerers

Third, to the tinkerers. If a pension is a form of tax relief, it will always be subject to tinkering, fiddling and meddling. The mantra from the pensions industry is to stop changing it, but “here are a few changes we’d like to make before we stop all further changes”.

The demands for no further change “because it is change that puts people off, not the rules themselves” have quietened down since issues such as the clearly flawed tapered annual allowance and lifetime allowance made pension planning harder.

Some providers annually generate extra pension contributions by speculating about possible future changes, which further weakens the argument.

If Selby wants his way, he isn’t going to have to just tinker with pensions policy; he is going to have to change public perception of pensions policy, while dismantling and replacing the UK’s democratic institutions with a system which hasn’t been around since renaissance Italy.

As a self-proclaimed Harry Potter “super-fan”, Selby is hardly the sort of man to be put off by a gritty challenge. If he succeeds, however, he is likely to find himself more than just pensions minister.

Phil Young is managing director of Zero Support

You can follow him on Twitter philyoungzero

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