With a general election to be held by June next year at the outside, corporate advisers are increasingly pondering what a new administration will mean for employers and employees. The smart money is on a Conservative victory, as the Brown premiership continues to languish though the Tories have lost some ground in the polls recently. And with talk of a March election, and a reasonable chance of a hung parliament, the parties’ policies are coming under increasing scrutiny.
When it comes to policies affecting the delivery of workplace benefits, one thing is certain. As campaigning begins in earnest, the “Turner consensus” on pensions is hanging by a thread. An exchange of views in October saw the Tory shadow secretary of state for work and pensions Theresa May say she would review personal accounts. This provoked Labour pensions minister Angela Eagle to retort that the consensus was crumbling although her opposite number Nigel Waterson, who is doing the detailed work on May’s team, was more conciliatory recently, saying the Conservatives had a plan B but didn’t want to use it.
That said, the likelihood of a plan B appears to be increasing with the withdrawal of another firm from the Pada process leaving only Tata, while the personal account timetable for employer contributions slipped a little further in the pre-budget report.
But pensions are not the only part of the corporate adviser’s range of services to be the subject of a heated debate. The tax exemptions on childcare vouchers were due to be phased out by 2015, a move announced by Gordon Brown at the Labour conference earlier this year. Labour faced a rebellion in its own ranks with an early day motion signed by more than 40 Labour MPs including former health secretary Patricia Hewitt and six other former cabinet members, demanding their retention. The Opposition seemed to enjoy the arguments in the Government ranks but opinion is divided on whether they would have reversed the decision. And the last weeks of 2009 saw a Government U-turn anyway.
Iain Anderson, chief corporate counsel at lobbyist Cicero Consulting believes Labour is now making a determined effort to appeal to its core vote using, among other things, the state pension. He says: “Since the autumn, Labour has taken the view that it must motivate its own voters, to increase the likelihood of Labour voters turning up in March or May. This is about activating them.”
“One of things that did surprise me was that the Government did seem to announce a squeeze on the contributions to public sector pensions, and maybe that is the foretaste of Labour starting to work on this.
We know that the Tories and centre right think tanks have thought about limiting access to public sector DB but the fact Labour have been prepared to cap current contributions is very interesting.”
Anderson doesn’t believe the PBR has changed Tory plans much.
“The Tories are totally committed to reviewing the whole Turner settlement. The pre-budget didn’t change any of that – the in tray of any Secretary of State for Work and Pensions will have two things in it – the Freud settlement on welfare reform and private pension reform and therefore the whole of personal accounts will get swept up in this, so it causes issues for every-one involved in that process.”
Lansons’ public affairs director Ralph Jackson believes that the last few months have seen a big change in Conservative positioning from not giving too much away to setting out policies that cannot be refuted. He says: “They realise, having had a look at the books, that they can’t keep the wait and see strategy.
They want pre-election clarity so that if they do their maths correctly and undertake the correct discussions, it will be difficult for the Government to say this is not going to work or cost too much. They are preparing for Government by being tough with people. But if you are an adviser of some significance they will want your view.”
Pensions
The Conservatives have made a review of personal accounts explicit. Shadow pensions minister Nigel Waterson, speaking at a recent Just Retirement debate on pensions income said: “We support a system of an auto-enrolled pension, a cheap, easy system for people who don’t have pensions at the moment. Whether the precise model for personal accounts is the right one – the jury is still out. We will have a review. We have concerns about the interaction between means tested benefits and personal accounts. We regard that as unfinished business.”
“The concern is that personal accounts will end up invading the space of existing provision. The acid test is we don’t just end up with more savers but with more savings. There is a danger we end up with the same or lower levels of savings spread around more people,” he said.
Pressed on the plan B talked about in industry circles, he said: “There is no party politics in any of this. It is only what works. We will have a very fast review of how far Pada have got. It is not an ID card scenario. Those people are still unpensioned. Whether this is the precise architecture we don’t know. We are not going to take on something that is lurching to the end of the runway but not going to take off. What works is all that matters. We will have a plan B but it is not something we will be ready to unveil before the election. It may not be necessary.”
Waterson said the Conservatives would look at allowing access to pension savings before retirement, learning from the US and saying the statistics backed up the suggestion this increased pension take up without people actually taking money early. He also wants to preserve DB pensions.
He said: “We are keen to help companies stay in DB pensions. We think there is a role for this what with all the risks in DC falling on consumers. We are looking hard at hybrids at DC plus and DB minus – ways of sharing the risk more equitably. If things were made simpler, we might see less DB schemes close. Some say they are doomed but there will always be employers who will strive to provide them and we shouldn’t make it so difficult for them.” This comes at a time when the DWP has recently closed its risk-sharing consultation. The age 75 rule which, he said, is as good as compulsory, because of the onerous penalties, would go, with Waterson meeting the Tory Treasury team to thrash out the tax position soon for probable inclusion in the manifesto.
When it comes to a possible coalition, political consultants say it is on pensions where it may be easiest to identify common ground between Tories and the Lib Dems. The earnings link would be restored, there would be auto-enrolment and state pension reform would be grappled with. But there are differences too.
The Lib Dems plan to scrap higher rate tax and concentrate on bringing the state pension up to the current level of the Minimum Income Guarantee long term.
Lib Dem shadow work and pensions secretary Steve Webb says: “Thirty years of letting the state pension wither has created the problems we have, so our priority is restoring the earnings link from day one, then as a goal, building it to where it is the bare minimum you need to live on. But you couldn’t get there in the short term. Our attitude to personal accounts is different whether they take people to 30 quid short of the MIG or five quid short. It is going to be a long while, till anyone gets a £30 a week personal account yet that is expected to replace £30 of means testing. Getting worked up about personal accounts misses the point.”
However the Lib Dems did get worked up about the accounts when Webb expressed fears that Tata, the last firm in the tender process, potentially having Pada over a barrel.
Webb’s views also chime with the Conservatives on early access, particularly to tax free cash in any pensions savings and Webb envisages few restrictions. The Liberals would allow wider access across the workforce for personal accounts. “It would be easier if we took the caps off higher earners. That would free things up a bit. I don’t have a problem with personal accounts as something new. You couldn’t pump this money through stakeholder,” he says.
Thomsons Online Benefits chief executive Michael Whitfield believes the Conservative position on personal accounts is getting close to the equivalent of three tests (like Brown’s five tests for euro entry), whether it hurts existing schemes, on means-testing and on the IT and admin situation. He thinks it possible the stakeholder infrastructure may be used.
Some advisers are a little less convinced. Origen head of benefits strategy Steve Herbert says: “The reality is whoever comes in will make some cosmetic changes. But the central tenets – auto-enrolment, company contributions, coverage for all – are still there. The biggest change is that company schemes might use stakeholder but I suspect it may be a step too far.”
Group Risk
The group risk market and policies which impact upon it, notably welfare reform, might be the closest thing there is to a consensus now. At times, it is a case of the parties trying to outdo each other. Grid spokesperson Katharine Moxham says: “They are singing from the same song sheet and a lot of progress has already been made, bringing some conditionality, i.e, we will pay you benefit but you have to get yourself ready to get back to work. I would hate to see that reversed with a change of Government. It is encouraging because personal responsibility is a big theme for the Tories. It is all about creating a climate of more responsibility for making provisions for yourself.” Grid will work on making the case for group risk to bridge the gap.
The Tories have gone so far as to poach Government welfare reform adviser David Freud to be Shadow Minister for welfare reform working with May’s shadow DWP team.
Moxham also points out that centre right think tank Reform proposed an element of group risk, or personal protection accounts to sit alongside personal accounts in a recent report called the End of Entitlement. As with all think tanks the measure of its influence can only be judged when it gets its ideas adopted by a governing party.
However, Cicero’s Iain Anderson says alongside Tory thinking on giving early access to pensions, there could well be an individual protection account, though he says there is reluctance to reveal details before the manifesto at least.
Child care vouchers
The recently published Hewitt flexible benefit survey 2009 shows that child care benefits were offered by 98 per cent of schemes. That may well explain why the Government reversed the decision to abolish the tax credits on them, following a public and party outcry. Accor Services Childcare Voucher Product Director Laura Czapiewski says: “The Government has listened to the concerns of working parents. Existing parents will benefit and new entrants will benefit.”
Those who believe the voucher scheme should be continued, even in times of austerity may take heart from the Conservative reaction at the time. Speaking at the Tory conference this year, Conservative families spokeswomen Maria Miller said: “Most of these parents are basic rate taxpayers. Isn’t this typical of Labour? Giving with one hand and taking away with another. It is hard working parents that are left to pick up the pieces and this has got to stop. A Conservative Government will support families, building systems around them for childcare.”
Group PMI
The Association of Medical Insurance Intermediaries chairman Mike Izzard believes the state of the public finances means that only cancer and perhaps cardio-vascular diseases are genuinely ring-fenced by the NHS. However, he says any radicalism around PMI and tax breaks for employers will depend on the extent of Conservative majority, though from conversations with them they are open to change.
He says: “I would like to see a different Government think outside the box and encourage individuals and SMEs to look after their employees, relieving the NHS of a financial burden. The health secretary is open to change through the tax arena to relieve the cost to the tax payer.
“If we dump some of this ideology about tax relief, the pay back could be 10 or 20 times more than what it costs them in tax relief.”
But the parlous state of the public finances could change the parameters of the debate yet again. Anderson has a wary eye on the credit markets and suggests that it may even be necessary to have an emergency budget before the next election, when the PBR’s recent generosity on the state pension might have to be reduced.
When it comes to corporate advice, ruling anything in or out may be a very difficult thing to do for the next few months and probably much longer
