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Tories play a waiting game

The political consensus on personal accounts is fragile and the Conservatives have been threatening to break it unless a solution to the issue of means-testing is found.

Money Marketing’s Time to Get Personal campaign aims to ensure that the problems surrounding personal accounts are not ignored as the Government focuses on tackling the economic crisis.

We are asking if a political consensus can be maintained if Opposition support depends on the Government addressing means-testing.

The Government’s review of the impact of means-testing on personal accounts is due out before the end of the year. Scottish Life head of pensions strategy Steve Bee believes the Tories are waiting for it to be published before resuming their attack.

He says: “The Government has gone away to check its assurances to us all that means-testing is a small issue, which I do not think it will be able to do. For a long time, this has been the elephant in the room.”

Bee has been surprised by the lack of discussion on personal accounts at the recent Conservative and Liberal Democrat party conferences. He says: “The Tories and LibDems are not talking about it. These are big issues that the Government has done its best to brush under the carpet. The House of Lords seems to be the one place where we do see the elephant in the room.”

But Hargreaves Lansdown head of pension research Tom McPhail thinks the Tories have gone quiet on the subject because they have not come up with a solution to the means-testing dilemma.

He says: “The Tories have not got any better ideas. The Government has kicked the issue into the long grass with this report. It does know what it is doing here. By the time the report comes out, the Pensions Bill will have gone through.”

The Tories do seem to have reined in their attack since earlier in the year when Shadow Work and Pensions Secretary Chris Grayling was vocal in saying that the consensus would be broken if the Government did not act to reduce the impact of means-testing on personal accounts.

McPhail says: “Back in the summer, Grayling was threatening to withdraw support over means-testing but I think they have not because they do not know what to do instead.”

Speaking to Money Marketing at the Tory party conference, Grayling said they could not lay down detailed proposals for dealing with means-testing until the Government unveiled its review.

Grayling said: “All the indications are that the Government is going to put its head in the sand over the issue and not do anything but I hope it will at least publish a document that we can work with. I am far from convinced that the Government is on the way to delivering personal accounts in a way that will work by 2012.”

Former Pension Minister Mike O’Brien has conceded that some people will be worse off in personal accounts because they will see a reduction in means-tested benefits but he dismisses “wild claims” about the extent to which people could lose out.

Solutions currently mooted by the Government include increasing trivial commutation limits or making the rules around benefits more generous.

Standard Life head of pensions policy John Lawson says there is another issue aside from means-testing over which the Tories have threatened to break consensus. In the House of Lords last week, Conservative Shadow Treasury Minister Baroness Noakes said they would withdraw support for personal accounts if the Government decided to subsidise personal accounts with taxpayers’ money.

Noakes said: “We gave our support to the personal accounts scheme on the basis that there was no subsidy. There are some things that may well challenge the consensus that exists on personal accounts. I will put it no higher at this stage but the minister should be aware that this is one of the things that might provide a dividing line in what we can accept for personal accounts.”

Lawson says he believes the Tories have thrown in these caveats more frequently since they have started to see themselves as an electable party to allow them some “wriggle room” if they do get into power.

He wonders if the Tories will make a third dividing line over the qualifying earnings’ definition on which an amendment has been tabled for discussion later this month.

But he thinks that means-testing is still the biggest potential cause of a rift. Lawson says: “Means-testing has the ability to wreck personal accounts altogether. There is still a consensus but it is being tested. It depends if the Tories think that the problems of personal accounts can be solved or not, especially on means-testing. If they do not think there is a solution to the problem, they are not going to implement something that is fundamentally flawed.”

However, Lawson believes that the Tories do want to maintain consensus. He reckons there is an 85 to 90 per cent chance of personal accounts going ahead, even if the Tories are elected to Government before 2012.

Lawson says: “Personal accounts are not going to be an election issue. The big issues will be the economy and whether Gordon Brown is fit to manage the country. The Tories will probably keep fairly quiet on pensions until they get into power.”

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