#Conservative Manifesto  – the pensions bits explained

Dirk Paterson

Here we have a political pragmatist not a fundamentalist.  The Conservative manifesto is sounding robust, responsible to the current environment and forward looking. It’s not afraid to be interventionist (a sentiment which is at odds with traditional economically liberal conservative values).  Bringing together a tough Brexit and mass council house building is broad tent policy making and brilliant political manoeuvring. What we see here is centre is almost Blairite in its magpie approach to winning voters.

Main points on the pensions chapter are as follows:

  • New powers to stop directors wrecking pensions schemes
  • Triple lock in place till 2020 then reverting to double lock (excluding the 2.5% option)
  • Support and expansion of autoenrollment
  • Hints of changes to tax changes to make pensions more like ISAs

Here’s a bit more detail and analysis on each of these issues;

  • New powers to stop directors wrecking pensions schemes

This is an interesting one. Were you to google ‘people UK voters hate and pensions’ Philip Green’s name would come up top next to Robert Maxwell.  Philip Green has also been the sort of ‘fat cat’ who has been associated with the Tory Party in the past.

The government was frustrated not to have the powers to pursue Green adequately so is pledging to create new powers to be given to the Pensions Regulator to issue “punitive” fines for those found to have “wilfully left a pension scheme under-resourced”.

Additionally it pledges new criminal offence to be considered for company directors who “deliberately or recklessly put at risk” a pension scheme’s ability to meet its obligations. Sounds familiar? Ed Miliband spoke of this sort of intervention. Significantly this interventionism echoes within the rest of the manifesto  – energy caps for example – very unusually interventionist stuff for a right wing government.

 

  • Triple lock

By introducing the Pensions Triple Lock and the new State Pension, Steve Webb as Lib Dem minister increased incomes of millions of older people. But as his successor, Ros Altmann has continually briefed it was way too expensive. So the promise (made in the previous Conservative manifesto) to keep the Triple Lock until 2020 is maintained. It will then be replaced by the very sensible Double Lock, which keeps track of inflation and earnings, but doesn’t add the unnecessary 2.5% measure.

  • Support and expansion of autoenrollment

Given the nature of the government and the instinctive support for business amongst traditional Conservatives, there was always some concern about carving the smallest businesses out of auto-enrolment. This would have been disastrous for the policy putting a cap on business expansion and penalising those who worked for smaller organisations. So, it’s a great relief to the pensions community that there is a clear pledge to keep automatic enrolment intact.

  • Hints of changes to tax changes to make pensions more like ISAs

The manifesto says the Tories will promote long-term savings and pensions products, including the Lifetime ISA. This by comparison to the above will send shivers down the spines of many pensions policy purists. It implies the end to pensions as we know it – with access to savings for houses and other key purchases before retirement. Far from boosting retirement saving some experts would claim that it removes the incentive to save for the long term and could result in pensioner poverty.

The tax arrangements for an ISA are the following:  TEE (taxed – when earned, Exempt from tax when the money is growing inside the wrapper, Exempt when taken out of the wrapper). However a pension works in the opposite way: EET (Exempt from tax at source if its put in the pension, Exempt when growing and Taxed when taken out).

Delaying the tax take till retirement is expensive for the treasury because: many die before they pay tax on this money, or pay tax on only a small amount of it and the tax take is delayed by 20-40 years. Exempting savers from tax at source for pension saving is a consumer incentive to save. However, for the Treasury, the removal of this incentive could mean a greater tax take sooner.

To move from EET to TEE is populist and the sentiments of empowerment will doubtless be largely welcomed.

 

 

In conclusion  – this is a pragmatic interventionist manifesto drawing around it a big tent to attract a broad range of voters. The pensions section echoes the clarion cry of ‘strong and table leadership’ with promises to nail the bad guys and protect the vulnerable while creating ‘freedom’. Though some pensions geeks won’t like it  – they won’t be able to question its populism.