I’ve seen enough manifestos, heard enough politicians’ speeches and pored over enough announcements and consultations to unfortunately have to adopt a cynical approach. It usually transpires that any announcement needs to be clarified by a series of further questions – for who, by when, how or for what purpose?
Whilst I’m not a psychologist it seems a good trick to make any announcement vague enough so that the target audience will fill in the unknowns with what they want to hear, and thereby consider the announcement to be a worthy one.
Now I’m not saying that every manifesto promise should be planned and probed to the nth degree – it is a statement of intentions after all - but I would be on the lookout for anything that could be misinterpreted and is in need of a bit more meat on the bones.
Let’s take a few pensions policies that are likely to be addressed in some form over the campaign, given that these are the issues that everyone has been talking about over the last few years. A series of theoretical pension commitments could read:
- A state pension of £180 per week
- No new increases to the state pension age for at least 20 years
- State pensions to rise at least in line with average earnings
- A fair approach to pensioner benefits
- Minimum workplace pension contributions of 15% up from the current target of 8%
- Fair tax relief on pension contributions for savers
- A National Insurance system that is fair to all workers and employers
- Improving the sustainability of defined benefit pension schemes and the companies that sponsor them.
I’d imagine each of these is likely to sound attractive to the majority of people. But let’s pull each of them apart a little:
- When by? Immediately or in the next five years? The New State Pension is currently £160 per week – an increase of 2.5% per annum would ensure it reaches £180pw within five years. Would the increase be applied to the Basic State Pension (£122 per week)? How would any extra increase be paid for?
- As outlined in our briefing, even the most recent recommendations on state pension age will not see any new increases before 2039. Does this guarantee that no future changes will be written into law in the next 20 years? (I doubt any party would commit to this, just as any party would be foolish to commit to no tax rises)
- This is actually a worse position than the current Triple Lock, which sees the main state pensions rise by the best of average earnings, CPI price inflation and 2.5%. If the Triple Lock is abolished, what will the savings be spent on?
- Does this mean an increase in means testing of pensioner benefits, or lower overall spending on these? If spending is not set to reduce, will it keep pace with rising cost of living?
- The current target of 8% will be made up of 4% from employees, 3% from employer and 1% in tax relief. Most people think the target should be of the order of 15% to generate decent pensions. However who will pay the extra – employers or employees. And will these apply to a greater proportion of earnings (mandatory contributions are currently restricted to a band of earnings); and will the policy be extended to younger workers and low earners, who are currently excluded?
- Does this mean the current system will be changed? If so, will there be losers? The word “fair” is completely subjective – who is it proposed to be fair to? Will higher earners lose some tax relief? Will all upfront tax relief be replaced with tax relief on pensions when they are taken (a pet project of George Osborne’s)?
- Is this a tax raising or spending proposal? If so how would any savings/spending be balanced? This commitment is not even slightly descriptive, but would give an indication that changes are potentially planned. These could include the previously proposed (but hastily abandoned) alignment between employed and self employed contributions; an extension of NI contributions to anyone working beyond State Pension age or just changing the rates and bands of earnings used to calculate NI.
- How would such sustainability be achieved? Again this is a very vague statement that could be the precursor to significant change. In line with the Green Paper that has recently been published and calls from within the industry it could be translated to weaken protections that ensure pension promises cannot be diluted without member consent.
These are likely to be the areas of pensions policy that form the battleground before June 8. Prospect will keep a close eye on manifestos and try to get answers to the more detailed questions that are likely to emerge.