Ageing strategies

MaeveSherlock-2-4x3.jpgMaeve Sherlock on why it’s all about to change for UK pensions

The Pensions Bill, which has its Lords Second Reading today, does four big things. 

The main change is to reform the state pension system by abolishing the Basic State Pension and the Second State Pension, replacing both with a new Single Tier Pension. It also ends contracting-out, continuing a direction of travel which Labour started when we were in government. But as always in pensions, the bad news and exclusions are in the small print, of which there is much. 

Although not means-tested at first, you’ll need 35 years of National Insurance Contributions to get the full state pension, reversing a significant Labour reform which reduced the contribution to 30 years. If you have between 10 and 35 years, you’ll get a pro rata amount; below 10, there’s no state pension and it’s back to means-tested benefits.  

Not everyone will get the new pension, including 700,000 women born between 1951 and 1953 (who have to wait longer to retire) – even though their twin brothers would. Those who expected a pension based on their spouses’ contributions may also be disappointed in future. And we are concerned that people may be no better off for having saved money, as the Savings Credit element of Pension Credit is being abolished.

The second set of changes relate to the State Pension Age, which the Bill proposes to review each Parliament. Regular reviews are acceptable but they must be done fairly, overseen by an independent cross-party panel to give people confidence. And there are some real issues over the differential impact of a higher pensionable age on different categories of people: male life expectancy at birth in Calton in Glasgow is just 54, while in nearby Lenzie it is 82. 

Third, the Bill reforms bereavement support, giving more help to younger bereaved people without children at the expense of bereaved parents. The latter will get a higher payment but for just one year. Is that change fair? 

There is then a whole section on private pensions, where the main issue is how to ensure the private pensions market is fair to savers and gives value for money. When Ed Miliband first raised the problem of rip-off pension charges, Ministers accused him of scaremongering – and claimed no action was needed because the pensions market was ‘vibrant’. In the Commons, Gregg McClymont pushed amendments to tackle the problem, but the government wouldn’t listen. Now they have suddenly announced that they want to cap charges. 

Incidentally, I’m still not sure why intervening in energy market is ‘Marxist’ but doing so with pensions is okay, but I won’t complain too much as working people are the winners.  Stealing our ideas is fine. It means we’re making the running on the issues that matter to people, especially on the cost of living. 

We will also argue for the full disclosure of all costs and charges including those extracted by fund managers, stronger trustee based governance and regulation of pension schemes, to tackle problems in the annuities market. And we will try to get the government to realise that its approach to dealing with pension pots, abandoned when people move jobs, is totally wrong-headed. They should instead back our proposal – favoured by most respondents to a DWP consultation on the issue – to move those pots into an ‘aggregator’ like NEST.  

Labour has a proud record on pensions. When we came into office in 1997, there were shockingly high levels of poverty among pensioners, many of whom had worked hard to rebuild Britain after the Second World War. So we took action to reward saving, give access to pensions to carers and low earners, and ensured that pensioner poverty fell to its lowest level for 30 years. 

The Pensions Bill is a move in the right direction but we will demand it passes a number of tests: Is it fair to all those who have contributed? Is it sustainable in the long term? Does it create a decent standard of living for all? Specifically, will it encourage the private pensions saving that the government is banking on to ensure decent retirement income? Only then can the country have confidence in these reforms. 

Baroness Maeve Sherlock is Shadow Work and Pensions Minister in the House of Lords

Published 3rd December 2013

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