Steve Bee may seem an unlikely vanguard of the proletariat but it is hard to see who else is speaking up for the poorest of the unpensioned in the debate on personal accounts. Maybe that is why TUC general secretary Brendan Barber had a pop at him last week.
Barber’s statement welcoming the Government’s recent announcement on personal accounts concludes with a thinly veiled criticism of the Scottish Life pension sage, where he calls for an increase in the trivial commutation limit, arguing it “would stop inaccurate talk of misselling from some vested interests for good”.
If the reason to increase trivial commutation were to stop inaccurate talk of misselling from vested interests, then I would probably be against it. But the issue is a key factor of a wider political discussion about the reform of the welfare state and who pays for it.
I am a supporter of personal accounts. But if the reforms go through as currently written, with a trivial commutation limit of 1 per cent of the lifetime limit, we are heading towards probably the biggest transfer of wealth away from the bottom 10 per cent of the workforce since the introduction of the much loathed poll tax.
I say the poll tax was much loathed but in fact there were many people who liked it. Those with big houses who saw their contribution to local authority coffers reduced as a result. But those at the bottom of the pile felt aggrieved when they had to start paying for something they had not paid for before.
Personal accounts will be more of a stealth tax because it will not be felt in the same immediate way as forking out for poll tax. Low-earners paying into personal accounts will even think they are getting something for nothing from their employers, when in fact they are probably forgoing some if not all of next year’s pay rise. But when they get over the trivial commutation limit, they will find out that they have effectively paid for benefits they would have got anyway, had they spent the money before retiring.
You may say that some extra money in retirement is better than none and you would be right. But that does not take away the fact that while the bottom 13 per cent of today’s pension savers will be able to commute benefits, many of those above the threshold may be, in the words of the Pensions Policy Institute, at “medium or high risk that personal accounts will not be suitable for them”.
These people include those with broken work records, the self-employed and those living in rented accommodation in retirement.
Most people agree that everyone has got to take more personal responsibility for their finances and that means-testing cannot be allowed to spread to cover 70 per cent of the population in 25 years time. But, as the PPI points out, for many, the plan will bring “a large negative impact on their means-tested benefits”.
Its report points to a £500m a year cost to the Treasury today for doubling the trivial commutation limit from £15,000 to £30,000, which, put in perspective, adds up to just 4 per cent of the cost of pensioner means-tested benefits. However, that would grow to £1.4bn, or 20 per cent of projected spend by 2050. The bottom line is that the poorest fifth of society are to be asked to pay for something that they are getting for nothing at the moment – means-tested benefits in retirement. Maybe this is a fair thing to do but in all of the debate to date, I have yet to see anyone standing up for these people.
Where are the back-bench Labour MPs who should at least be making sure these poorer constituents’ voice are heard? The TUC, which is shooting the messenger when it has a go at Bee, has been barely audible on the issue. But then I would bet that most TUC members are not in the bottom sector of the workforce when it comes to income.
I hope Barber’s softly, softly approach on the means-testing issue that is inherent in the personal accounts project works. Fortunately, there is a way to go before anything concrete will take shape. But it is fair to say that so far the most eloquent advocate in defence of the finances of those currently on course to retire on pension credit works for an Edinburgh insurer.
John Greenwood is editor of Corporate Adviser.