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The Politics of pensions

Waiting for Turner seemed to characterise much of the financial services public policy agenda during 2005.

A general election year, 2005 has seen some considerable political highs and lows. The Prime Minister has again been in the firing line, with the timing of his expected handover to Gordon Brown the subject of continuing conjecture.

And just when Tony Blair thought he had his old friend David Blunkett safely back in the Cabinet to push through welfare and pension reform – he lost him within just six months.

The year began with the air thick with electioneering and many MPs told to spend as much of the week in their constituencies as possible but there was still the serious business of Government to be done.

The March Budget saw the Chancellor listen to the investment industry – led by calls from the Pep and Isa Managers’ Association and the Investment Management Association – to retreat on plans to reduce overall Isa contribution limits to £5,000.

This was an important win for the industry before the general election and did not have the Parliamentary time to be passed before the election. Thankfully, with some rather effective nudging, the Government picked up the cudgel on this one following the election.

The spring also saw the birth of the child trust fund and we end the year with almost one million saving out of the possible 1.5 million. If nothing else, this event has helped to invigorate many of the best marketing minds in financial services.

The general election in May did not cause many surprises in terms of the Labour victory but the size of the eventual Government majority did cause some upset and hastened talk of the timing of Blair’s eventual departure from Downing Street.

During the campaign, the Government was very careful to park pension policy to the Turner report.

The Government kicked off the new Parliament with a massively ambitious Queen’s Speech legislative package of around 45 bills to debate over a long Parliamentary session to November 2006.

The package also included another five bills in draft form, including the likely pension legislation to follow the Pensions Commission at some point in 2006 or 2007.

The Government has had to get used to its smaller majority – down from 165 to 67 – as there have been and are likely to continue to be a number of backbench rebellions on issues such as welfare reform, NHS reform and perhaps pensions.

We can expect to see some considerable political tension on many of these issues and a much enhanced opportunity to influence outcomes.

The Queen’s speech noted that the Government will bring forward a draft pension bill to “begin the long-term reform to provide sustain- able income for those in retirement”.

Blunkett then quickly signalled that there would be a pension summit in late June, involving ministers and representatives from other parties and key stakeholders which would mark the start of a long consultation process.

But, by mid-July, Blunkett was indicating that pension policy would need to be looked at in the context of the wider public finances. He clearly had an eye on any handover to Gordon Brown and was trying to get just a little closer.

His announcement that his department would be looking seriously at the wider political issues around pension reform and specifically the plight of women and pensions allowed for the development of a more sophisticated and detailed public policy debate which some providers – such as Scottish Widows stepped firmly into.

Any draft pension bill later this Parliament will also have to take on board any recommendations brought forward in the Pensions Commission’s Second Report. Publication of the full draft bill is highly unlikely before the end of 2006 as most of next year will be dominated by the wider debate on Turner.

This will not allow the planned White Paper to see the light of day before the summer – perhaps not until autumn at the earliest. This should make for an interesting time at the Labour Party conference next autumn when I expect Blair to announce a time- table for departure – perhaps as early as 2007 when he will have been Prime Minister for 10 years. Events, dear boy, events – as Harold McMillan once said, may get in the way of that agenda.

The Government will use the Parliamentary scrutiny of the draft bill to test opinion on “soft” proposals and build the necessary consensus for reform slowly. The Government may even set up a joint committee of the Houses of Parliament, a quasi Royal Commission, to this end.

A Pension Bill would then result in time for the next Queen’s speech in autumn 2006, to be enacted in 2007.

After what seems like a very long month of leaks and speculation, Adair Turner finally confirmed his blueprint for pension reform last week.

As expected, Turner pointed policymakers in the Department for Work and Pensions, Number 10 and Treasury towards a national savings scheme collected through the National Insurance system, raising the state pension age from 65 to 68 as well as simplifying state pension arrangements by raising the basic state pension.

Now follows a political battle royal on the Pensions Commission agenda which is set to dominate much of 2006.The Prime Minister has already signalled his opposition to the public sector pension retirement age deal and would like to see policy move in the direction of age 67 and beyond in the coming White Paper.

On the other hand, the Treasury will mount a steadfast defence of the pension credit in the medium term and will try, on the grounds of affordability, to scupper plans to raise the level of the basic state pension.

We are already hearing that the Government will take at least six months to publish the Pension Green Paper and we are promised a Pensions Bill in the current session but watch this space. With the internal policy debate now set to rage, watch that timetable slip.

Further reform of incapacity benefit was much expected and Blair is keen to push this through before he leaves office.Blair said: “Our task now is to deepen the change, accelerate reform and address head-on the priorities of the British people.

“The Government noted that the benefit would be reformed so it would help increasing numbers of people to return to work while making sure there is long-term support available for those who are unable to work.

Secretary of State for Work and Pensions before the general election, Alan Johnson, had noted in March that the DWP would be presenting Parliament with a Green Paper on reform by July, which would then be open to consultation.

It remains to be seen how Hutton will progress with this. Blair has already noted that pension reform will be in part funded from more people returning to work.But in a very full political year, you have to feel some sympathy for Blunkett.

A “big beast”, he put welfare reform and pensions right at the heart of the Third Term agenda and he will not be around to lead these debates. Politics is not a kind business.

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