Torsten Bell, recently appointed to the role of pensions minister, is charged with delivering material improvements to the retirement prospects of millions of UK citizens. He could also support the financial wellbeing of people before they retire, by granting access to pension for a first home purchase deposit.
Having spent a decade at the Resolution Foundation, he has deep experience of the challenges facing low- and middle-income people. Fighting the corner of lower income groups is what Labour MPs are meant to do, and have done with differing degrees of success. But when it comes to pensions policy, Labour has on occasion ignored the unrepresented low earners, the strivers, those with multiple jobs.
Auto-enrolment was a Labour policy. But when the Conservative/LibDem coalition introduced the single-tier pension in a way that meant most of those it was designed to help actually lost out, Labour was silent.
Lord Turner’s 10-12 million people undersaving were the lowest-earning workers in the UK, and were all, by definition, contracted in to state second pension. While those with pensions (public sector workers, those who had seen financial advisers, private sector DB and DC contracted-out), were cushioned from the pain of a switch to a lower flat-rate pension for working people, the contracted in lost out big time.
There are contracted out people retiring in the next few years with pots built up from their diverted NI that are well in excess of £100,000, in some cases double that figure. These people will get the same (lower) full state pension as those people who trusted the system and remained contracted in, a group which by definition includes everyone with no pension savings of their own. Labour gave no challenge to this policy change, despite the obvious wealth transfer up the income scale. Those contracted-in savers aged around 50 when the single-tier pension was introduced in 2016 all got their pension accrual frozen at the new lower rate. Under the old system they would have gone on to build up a state pension in many cases 50 per cent higher. For many if not most of those Turner target market newly auto-enrolled savers reaching state pension age in the next 20 years, their DC income will not exceed the state second pension they have lost, and they will have paid for the privilege through their contributions.
You might suggest I get over it. That was then, this is now. But I am concerned that Labour is about to let down hard-working unrepresented low earners again – this time those renting in retirement. The inconvenient truth is that many in private rented homes are on course to see the entirety of their pension savings wiped out by means testing.
Early access to pension for first house purchase is a complex area, as is the interaction of means testing and pension saving. But we had hoped the second phase of the pension review would examine this and other broader financial wellbeing issues that create such torment and misery to so many UK citizens. Labour’s decision to shelve the second part of this review is disappointing to say the least.
Labour’s opposition to access is based on the Meeting Housing Demand report for the House of Lords Built Environment Committee. This criticised the cost of Help to Buy, arguing funds would be better used in building more homes. Of course building more homes is key. But access to pension would come at zero cost to the Treasury.
The Government is preoccupied with accessing DC cash to fund investment in UK innovation, infrastructure and housing. So why not let individuals, currently stuck on the hamster wheel of debt and high rents, invest their pensions into their first home? Yes it may push up property prices, but the alternative is excluding low earners from the market and condemning them to renting in retirement.
