Waiting in the shadows

Shadowing arguably the most popular pensions minister for a generation is a challenging brief. For Labour’s rising star Gregg McClymont, the MP for Cumbernauld, Kilsyth and Kirkintilloch East, the job is as much about exposing the differences between what Steve Webb believes and what he is allowed to say as it is about ideological confrontation.

McClymont, a former history don who took over the brief from Rachel Reeves six months ago, is clearly an emerging force in the Party, his December 2011 pamphlet urging Ed Miliband to avoid the Tory trap of defining itself as solely the defender of public services, and instead focusing on a vision for growth.

Back in the world of pensions he does not deny his opponent’s popularity.

“Certainly people in the industry say positive things about Steve, but he can’t get away from the dynamic of the Coalition government. I have no doubt he wants to deliver on his good intentions, but the question is, can he deliver them within this government? That is the $64,000 question,” says McClymont.

The single biggest political issue for this parliament will be, says McClymont, the implementation of a flat-rate pension. Webb’s success in his post should therefore be judged on whether he succeeds in implementing it, he argues.

Despite some in the industry starting to get twitchy about the possibility that the idea of a flat-rate pension is holed below the water-line, McClymont says it is too early to pass judgement.

“With pensions you have to put in reforms for the long term and with politics there is always that short term imperative”

“I take Steve Webb at his word when he says that he is going to bring forward proposals. But I would say that if this coalition government is defined by one thing, it is an argument about finances. Webb has been saying he can deliver this thing cost-neutrally, but if there is going to be a cost then we are into territory where the Treasury will have its say and then it all becomes very tricky,” he says.

“As is often the case, there is a reason why it has not happened so far, and that is because it’s complicated and difficult to put in place, partly because of the cost, and NI issues for DB members but also because of the cohort who will lose out.

“Clearly with big policy initiatives like this there is always a question as to how much of a role the Treasury will have in the matter,” he says.

McClymont supports the overall idea of a flat-rate pension, arguing the simplification it would bring would make it worthwhile. But does he support the fact that it would effectively mean the state paying more pension to rich people?

“There is the winners and losers argument. Overall I think reducing the complexity and getting to that £140 a week allows the rest of the pensions world to build on that. But it is one thing to talk about it and it is something else to actually deliver it,” says McClymont.

And if state pension reform does not happen, where does that leave the whole Turner settlement?

“A failure to sort state pensions will put the Turner settlement in some jeopardy. We know pensions is a very difficult subject and all of the pillars need to be structured in a way that they all come together, and if the government cannot deliver on that there will be knock-on consequences in other fields,” he says.

“We were sceptical about auto-enrolment happening on time as soon as we knew about the Beecroft report, and that turned out to be true”

So is he concerned at what seems a pause in the conversation on a flat rate pension?

“We’ll just have to wait and see when the DWP comes forward with proposals. It says this year, but a year is a long time,” he says, adding that the prospect of an NI increase for DB members could be a factor. “It is certainly an issue, and you have got to put it into the pot. They have been pretty tight-lipped about all of this.”

McClymont points to the auto-enrolment delay as grounds for concern about Webb’s ability to deliver.

“We were sceptical about auto-enrolment happening on time as soon as we knew about the Beecroft report, and that turned out to be true.

“The worrying thing is that because we know auto-enrolment is so important, it is a testing ground for the government’s ability to deliver across a range of pensions issues and priorities. And to stumble at the first hurdle, even before you get to the first hurdle, is worrying. It undermines your confidence in the government’s ability to deliver in other areas,” he says.

McClymont wants to get to the bottom of the way the Beecroft Report appears to have knocked fixed government policy so easily. He has issued a Freedom of Information Act request for a copy of the Beecroft Report, which has been turned down, and consequently he has appealed.

He believes the reason that it has not been released is because it is not very impressive. Were it to be shown that the delay in full implementation of auto-enrolment until well into the next parliament was done on the basis of flimsy evidence, the political fallout could be significant.

“What is the evidence basis for the delay? Since they have never let us see it, we don’t know. There was no supporting material, only the headline statements,” he says.

So does he think the government has got any political capital or economic benefit out of the delay?

“Political capital? Unlikely. It’s pleased some Conservative backbenchers who see everything as red tape. As to economic benefits, it is pretty unlikely. That is not to say that when you are running a small business in particular, there are not issues around regulation but because the pension situation is so serious we just have to get on with it,” says McClymont.

Does he see the government boxed into a corner if it attempts to argue that the delay was implemented because it expects employers to still be struggling when, by its own Treasury projections, growth is predicted to be at 3 per cent in 2016 anyway?

“My view is that auto-enrolment is so important to delivering a better pension system that any delay is damaging. With pensions you have to put in reforms for the long term and with politics there is always that short term imperative and this was what happened with the delay to auto-enrolment,” he adds.

“When I took over this brief, one of the things that struck me is the disaggregation of pensions. We need to scale up. It is complicated, and I don’t have a solution, but it is definitely a problem”

“People say consensus is very important in pensions. And there is a lot of truth in that because you are trying to take long-term decisions in a world in which the short-term is very important. But where I differ in view I will say so. And on many occasions I may not even be disagreeing with Steve Webb – it may be that he shares my view but is not allowed to say so in a coalition government in which there are 50 or so LibDem MPs and nearly 300 Conservatives,” he says.

Charges on pensions are set to remain a key issue and Labour is doing its own research on that before deciding its position.

McClymont argues that charges are definitely too high: “but the value chain is complicated and it might not necessarily be to do with fund managers. It could also be related to other parts in the chain and we are currently investigating that. There is an issue about the overall cost of pension products but it is not all about charges,” he says. “We are doing research on how to construct a transparent system and how to break down costs although this is going to take several months.”

Labour’s position on the RPI/CPI switch is clearer, although DB members are unlikely to be holding their breath in anticipation of a change should the party be elected. “We do not support the move to CPI other than as a temporary measure to reduce the deficit, but since we do not know what the government finances are going to be like when we return to the office, we cannot promise to restore it,” he says.

For McClymont, getting people to save for themselves is key. “The broader battleground of getting people to save enough for a decent retirement is crucial. Because in the final analysis if we do not get the pension system working it is the state who will have to pick up the bill down the line. The first step is to get people who aren’t saving in a pension scheme doing so. That is hard enough to do in itself. Then once that is achieved, it is right to raise contributions.

“We have Nest, and we now have Now: Pensions and The People’s Pension. We are beginning to see a market there,” he says.

So should Nest have its restrictions removed?

“There is a strong case for that, yes, and that is something I have put to Steve Webb. Part of that development of policy was that Nest would be unfairly advantaged. But now there is competition it seems there is a strong case for removing the restrictions on Nest. Steve Webb’s answer to my question was that he is reflecting on it. The big issue is that we have got to get auto-enrolment to work, and Nest is a big part of that. It is not just a big problem for Nest but also for employers – they want to be able to have all their members in one scheme,” he says.

Small pots are also a big concern for McClymont. “Speaking generally, when I took over this brief, one of the things that struck me is the disaggregation of pensions. We need to scale up. It is complicated, and I don’t have a solution, but it is definitely a problem.”

And higher rate tax relief on pensions? McClymont is not in a position to give a clear indication of Labour policy at this stage.

“It is in the policy review,” he says. “One of my answers when I am asked this question is that I suspect it is not as straightforward as it might appear.”

With three years to go until the Coalition needs to call the next election McClymont is in the position of watching and responding to policies rather than creating them. Given the fact that the key policies being implemented had their genesis in Labour’s administration, it is deviation from the course that looks set to be his biggest source of conflict.