With so many reviews going on in the realm of pensions right now it is easy to think that we are in the midst of a Turner Mark II. But this time, rather than have one central decision-maker pulling the ideas altogether, the current raft of reviews gives the impression of being conducted on a piecemeal basis.
Of course it is right that the numerous pieces of the complex jigsaw that makes up the UK retirement system are analysed in full. But the extent to which many of the proposals put forward by the various people conducting the reviews can have any validity is surely compromised by the fact that they all interact.
For example, the ramifications of abolishing contracting out completely extend well into John Hutton’s review into public sector pensions. Using the cash saved by such a proposal to boost basic state pension then has a knock-on effect on the consultation on Nest and auto-enrolment.
nd the proposal to cut universal benefits such as winter fuel allowance and free TV licences, trimming £10 a week off basic state pension – a cut of more than 10 per cent – which may seem great to the Treasury in isolation, also impacts on this particular part of the picture.
So are we likely to get nothing more than piecemeal changes from the current round of reviews, or is there a greater intellect behind the scenes, pulling it all together?
“A lot depends on how much time the DWP and Treasury thinks it has to deal with this. If money is a priority in the short term then we are likely to see a lot of things happening in isolation,” says Paul Goodwin, head of pensions at Aviva.
“Then, further down the line, if the government sees we are on a sound foundation, it may feel it can take a strategic overview of everything. But for the moment most of what we will get will be tactical changes that can save the government some money.”
That said, Goodwin does hold out some hope that pension minister Steve Webb will do his best to make the most of his period of office. And ideas such as the abolition of contracting out altogether would help pave the way.
“The biggest picture change we may see from Steve Webb is fixing basic state pension and S2P and making it relevant to more people in a way that can abolish means testing,” says Goodwin, pointing to multi-party support for the idea with Baroness Hollis proposing something similar from the Labour side, and now supported by Michael Johnson of the right-leaning Centre for Policy Studies. “You do have all the main parties more or less agreeing that something could be done in this area,” says Goodwin. “But, while in principle it sounds like the right idea, the devil will be in the detail.”
Alasdair Buchanan, group head of communications at Scottish Life believes the government is approaching it in the right way. “The ripples for all proposals will have consequences in other areas of pensions, and you cannot totally isolate any of these reviews. But you can look at Nest and automatic enrolment together, which are closely linked but not connected with the removal of the maximum age to buy an annuity,” he says. “Only someone with five brains could take on such a big task as tying it all together,” says Buchanan in an oblique reference to Webb.
Indeed Webb’s drive in the direction of a citizen’s, or resident’s pension at or around the level of the pension credit seems to be gaining momentum.
Dr Ros Altmann, independent pensions consultant sees it as the government’s first big picture priority. “You have got to start with the state pension and think about how you are going to strengthen it, so you get rid of means testing,” she says.
Altmann believes the chances of actual progress on the issue have risen considerably since Webb’s appointment. Ideas that once were considered fanciful could now get a real airing.
“I think there is a chance here we may actually get somewhere. Before the Coalition I would have said the chances were 0.5 per cent, but since Steve Webb took office he has pushed up the probability of radical change to around 40 per cent,” says Altmann.”But he still needs to get the Treasury and the officials inside the DWP onside.”
Such a change, hinted at by last month’s floating of the idea of abolishing contracting out altogether, would mark a rapid move on policy that would make the Turner proposals look pale by comparison.
“I always said Turner’s analysis was brilliant, but that the conclusions were not bold enough. The country was up for radical change at the time, but Turner’s proposals were just a half-way house designed to not upset Gordon Brown too much,” says Altmann.
“We have the opportunity to make radical changes and they are long overdue.
“The downside is the complexity of these schemes,” says Altman. “But we have got the CPI changes coming in anyway, so why not do the whole lot at the same time. The simplification would be a massive boost to the pensions saving industry.”
