Ros Altmann is a familiar name in the world of pensions. The former government pensions adviser is at times a one-women campaign against injustices and unfairness.
Last year’s victory for the Pensions Action Group has done nothing to quench the indignation she feels at the Government’s handling of pension reform. She describes it as “a bit of a con trick” and top of her list of priorities is personal accounts.
Altmann is scathing in her criticism. She says: “I honestly believe that personal accounts are the worst thing that could happen to pensions.”
The problems are so numerous she does not know where to start when asked to list them. But top of the list has to be the impact of means testing, or suitability, and levelling down.
Altmann says businesses will jump at the chance to reduce the value of pensions and personal accounts will become the accepted standard.
“If you were planning on doing it you would not tell anyone you were doing it in advance. As sure as eggs is eggs, if employer has an opportunity to cut back on labour costs, they will.”
The issue of means testing and the suitability for membership is equally problematic, she says.
But as with many of the problems with personal accounts, it is a one where all the risk lies with the member.
“The suitability problems is a member issue, because they will just have replaced their pension credit. And they will end up being taxed at least at 40 per cent, maybe 100 per cent. They do not have a good idea what pension they will get out but they will think while they are putting the money in ‘that’s ok, I am saving for my pension now – it’s what the Government says I should be doing’. But we all now that 8 per cent of band earnings is not going to give you very much.”
Altmann also points out that many other areas of personal accounts are yet to be decided and many more problems could lurk.
But these are being hidden by an unholy alliance of the interested parties. “Short term, politicians love it, employers love it, the industry loves it and is welcoming it because they want to earn fees on managing the money,” she says. “And furthermore, the Government can see that getting people saving in these things, and automatically enrolling them without advice – many of them will be saving simply to replace means testing.”
Without lasting reform of the whole pension system, tinkering with personal accounts is irrelevant. “We are rearranging the deckchairs on the Titanic. The system is sinking. Tweaking a bit here or rearranging some of the bits is not going to stop the problem,” she says.
The recent reforms of the state system comes in for equally scathing criticism. Altmann says the Government’s proud boast that the basic state pension is being tied back to earnings in some future year is slightly disingenuous, as no date has yet been set. “In the meantime the pension is cut, time and time again. And the state earnings related bit that was supposed to be tied to earnings, is now going to be tied to prices. So you have given with one hand, taken with the other and everybody except public sector workers is going to have to wait until 68 for this so-called higher pension.
“Meanwhile, the state pension is hopelessly inadequate. It is too low and it is too complex. And instead of giving a proper base, on which private sources of income can then build a supplement, the Government is still planning to pay an indecent level of state pension and then force nearly half of pensioners to go cap in hand for a means test for a top up.”
For advisers this means that it is very difficult to advise on pensions.
“All the adviser can say to you is ‘we don’t quite know what you are going to get from the state, or how you are going to get it. There is a risk you might end up needing pension credit and therefore being penalised for any private pension you have got. But if you want to take that risk, we can do some saving for you.'”
Without giving some stability to the pensions system, advice she suggests is effectively now only for the wealthy. The way that tax relief works in favour of higher rate tax payers, offering them 40 relief on contributions, heavily slants pensions in their favour.
“For someone on a high level of income, the opportunities are fantastic. But is that what we should be spending our money on? Tax relief costs us £28bn a year. About four times as much as we pay in pension credit.
“We could spend it on hospitals, we could spend it on pensioners, we could spend it on so many things and we are spending it on tax relief for top earners.”
Altmann says there are ways of sorting the problems out. A decent, flat rate basic state pension for all would be a good start. As would exempting some, if not all, pension income when looking at means testing.
Levelling down would be harder to prevent, but legislation to force employers to class pension contribution as part of employees pay and protect it from being cut may help.
But she doubts that there is the political will to accomplish this.
In fact, she suggests that one of the reasons that personal accounts have ended up as a halfway house, is a lack of commitment from the prime minister: “My fear all alone was actually what personal accounts really were, were Gordon Brown’s way of allowing Tony Blair to imagine he had done something really radical on pensions. And that he never really wanted them and never really liked them.”
In the meantime, it is the the public who she says are going to be the victims of an ill thought out and badly implemented scheme.
“There are a lot of vested interests in not telling the story as it is. As by the time people find out the truth those people will have long gone, or have made money along the way.”