They say politicians are people who, when they see light at the end of the tunnel, go out and buy some more tunnel. Anyone who has followed the political debate regarding pensions over the last decade will agree with that.
Now we are told the end is in sight. The Coalition is committed to auto-enrolment, and with Nest the only game in town the deal will be done over a new national savings pension scheme before the end of the year.
Or will it? At a recent savings conference organised by the Association of British Insurers, a wellconnected LibDem, Olly Grender, cast a smidgen of doubt. Olly is a former LibDem communications guru, and speech writer for Paddy Ashdown; a sort of LibDem Alistair Campbell.
She told the conference she had no doubt pensions minister Steve Webb was committed to autoenrolment, but raised the possibility that the Treasury could yet block it out of concern at the not inconsiderable cost. This is understandable when Government departments are being asked to slash budgets by 40 per cent.
Stories have already begun circulating of work and pensions secretary Iain Duncan Smith being at loggerheads with the Treasury over other welfare ambitions. We still have a painful autumn spending review ahead, which may define anew that other old adage – politics is the art of the possible.
There seem to be four roadblocks. Nest is due to kick off in October 2012, potentially the darkest hour of the recession. We may well be seeing riots in major cities following 18 months of tax hikes, with potentially rising unemployment, climbing interest rates, a second property crash and public services in tatters. Explaining to employees and businesses, after nearly five years of recession and pay cuts or freezes, why they should accept yet another attack on their income will be no easy task.
Then, there are the not insignificant costs to the Treasury of tax relief – estimated at £2.3bn annually, as well as those of the new Nest quango,
variously put at between £400m and £600m.
Finally, there is the overall political risk. What happens if it all goes pear-shaped? Savers may be shocked at having been forced into saving if the result is derisory. Let’s not forget that stock markets are lower today than a decade ago.
More seriously still, what if funds fail or there is another catastrophe we cannot currently predict?
Who will take the blame, and crucially pick up the compensation bill? These questions are currently exercising greater brains than mine. Yet uncertainty makes the job of advisers very difficult. Their concern will be whether these obstacles can be overcome or prove fatal.
Nest is due to kick off in October 2012, potentially the darkest hour of the recession. We may well be seeing riots in major cities following rising unemployment, climbing interest rates, a second property crash and public services in tatters
If the political will exists, Nest is still doable. Much, though, will depend on the progression of the recession and fall out from fiscal restrictions.
Contributions, too, will be phased, beginning at 2 per cent until 2016, rather than 8 per cent. On this basis, tax relief should also be quartered, bringing it down initially to a less than eyewatering £575m annually when fully up and running in 2014.
The political fall-out will not be decided by numerical equations, which leaves Nest. The Coalition has gone to war on quangos which doesn’t augur well.
But there may be no alternative.
The private sector is divided. One group believes if you increase the minimum income to say £15,000, and exclude far more smaller companies, then pension firms could run it.
But others say they couldn’t, not for 0.3 per cent a year, and the watering-down of auto-enrolment required would be so extreme as to make it
meaningless.
Oh well, there’s always the Big Society of course. Perhaps actuaries and other pensions advisers who have taken early retirement in their 50s might like to run the system on a voluntary basis? As Martin Luther King said, it’s never too late to carve a tunnel
of hope through a mountain of disappointment.
Teresa Hunter is personal finance editor of Scotland on Sunday