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Take time on Turner

The Government’s pension policy is built on dry rot and is facing collapse

The Government could set up a library for discarded reports into cracking the UK’s pension problem.

But is Adair Turner’s second report about to be filed on the same shelf as Ron Sandler, Alan Pickering, Tom Ross and the rest?

What of Frank Field and his ideas as Minister of State for welfare reform? Can anyone recall the policies put forward by the litany of ministers, Denham, Rooker, Timms? Most pension ministers and Secretaries of State from Harman to Johnson were satisfied if they kept the subject off the pages of the national press.

Some promised change, some impressed by their ability to listen but were moved on.

The pension system is not about to burn down, it is more like a town made of wood with a bad case of dry rot, a slower collapse but inevitable.

Pension savings have declined, strait-jacketed by means’ testing and price-capping,with people getting less incentive to save and advisers little incentive to sell. The suspicions of polticians and civil servants about advisers meant retail reforms, notably stakeholder, went against the grain of what was already in place . The company side and, in particular, defined-benefit pensions have lurched from crisis to crisis and seen a flight to defined contribution. Company pensions have seen the removal of dividend tax credits, been allowed imprudent payment holidays, suffered from a failure to enforce existing protections and threatened by new accounting standards which put funds’ volatility on to company balance sheets. Many made the sort of bull market-bear market mistakes that retail investors made.

The Government is still being taken to task for misadvising members of several of shaky occupational schemes by sticking to the dogma that company schemes must always be best. Just to make matters worse, we had Equitable Life clinging to life but at great detriment to its customers.

As for the state pension policy, miserly rebates have meant that contracting out is unlikely to be worth almost anyone’s while.

The minimum income guarantee pulled pensioners out of poverty but punished thrift. A more incentivised pension credit was created but it simply made the original disincentive less disincentivising.

Now we have Adair Turner advising on pensions again while another Downing Street row about his findings has erupted.

Plans for a sensible increase in the retirement age would help fund a move away from means’ testing. This has pulled pensioners out of poverty but almost any politician admits it is a short-term solution. But if nothing is done then it in danger of becoming a long-term policy.

With means’ testing, mass pension savings is imperilled for all but the better off in the long term. This is the bit that should form the foundation of policy. Unfortunately, it is also the most controversial.

What may be implemented is another attempt to reform the private sector bit, which it is always assumed will cost less.

We have seen the invention of implausible new forms of adviser, price caps and now it looks like another attempt at retail change.

Here is another suggestion. Send the FSA lawyers out of the room and find a way to stop misselling. Define what misselling is and create a system of regulation that stops companies and advisers from misselling. Then burn the rest of the rulebook.

With a flat state pension, let the private sector get on with convincing people to save.

One last bit of advice, for the first time in this Government’s pension policy – read the report, consider its findings and, before anything is done, make this a guiding rule for reform, first do no harm.

John Lappin is Editor of Money Marketing

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