Pensions Freedom speech at the Financial Times conference, Birmingham , March 9, 2016

Since being given the role of Shadow Pensioners Minister just a few months ago I have been listening and learning from key stakeholders. A process that helps me and my party scrutinise and challenge the current government as well as developing credible policy agenda for the future.

Meeting with you today is part of that listening and learning process

As people get to know me, you will find that I am a straight-talking, honest politician who understands the challenges that people face today. An approach that has been shaped by my years working as a carer and as a Trade Unionist in the North West of England. And I know that you will agree that we need a bit of honesty and a bit of straight-talking about Pensions in Britain:

My starting point for the pensions brief has been guided by these three questions;

What they are for?

How they are changing?

And who are they working for?

A starting point that the current government needs to reflect on to help both the pensions industry and citizens plan for a secure future.

Instead, we have had both the former Coalition and now the Conservative government implementing quite radical reforms with minimal consultation or certainty about their success.

Claiming to be on the side of today’s pensioners – and listening to the industry while gambling with the pensions of succeeding generations.

And my party needs to renew itself in opposition and develop a compelling alternative if we are to win the trust of pensioners again.

According to quite an extensive poll carried out by YOU Gov immediately after the General Election, just one in four pensioners over 65 voted for my party compared to 45 per cent backing the Conservatives.

This paints quite a stark picture but I do like a challenge, a challenge to become the natural home for pensioners, offering hope and security for the future.

Labour in government did get some things right, building strong foundations that were the building blocks of some of the more credible pension reforms you see today.

Labour achievements

Labour lifted a million pensioners out of poverty – the relative security of today’s generation of pensioners was established under Labour through a mixture of targeted and universal interventions:

  • Pension Credit
  • Pensioner benefits: Winter Fuel Allowance, Free Bus Passes & TV licences
  • And we made careful, considered, structural improvements to the market too.

We established the Turner Commission to build cross party and inter-generational consensus on a great range of issues, including the fundamental agreement’

  • ‘the need for an increase in state pension expenditure as a percentage of GDP between 2020 and 2045.’ Turner Commission

We established that trajectory and the current Government have stuck with it. Just as they’ve stuck with Labour’s implementation of:

  • The Pension Protection Fund
  • Labour’s programme of Auto-enrolment 
  • And Labour’s invention of NEST –  

But in many areas, the current government have broken with that earlier, post-Turner consensus and brought forward radical – profoundly un-conservative -  changes to the market - and the very meaning - of pensions in our country.

And we as the official opposition have started to ask some searching questions about the security of our pensions, and the future security of our country.

Because pensions policy – so often condemned to the back pages or the pink pages of the wonderful Financial Times is about nothing less than that – the security of individuals and the society we make up.

And soundbites you so often hear in Parliament aren’t enough.

Instead we need an honest grown up conversation in Britain about the future of our pensions.

About the incomes and the living standards that succeeding generations can expect

And about the contracts between generations, and between the individual, employers and the state.

These are the means of achieving that security.

Now if you listen to the current government announcements on pensions it sounds like jam today and jam tomorrow.

The Single Tier State Pension to protect us today and Pensions Freedoms to liberate us tomorrow. 

And there are aspects of these reforms that my party do support and can admire:

greater simplicity and unity in the state pension is a good thing and getting rid of some of the onerous charges and restrictions on accessing the money in your pension pot will also be positive for many. I am sure you agree!

Auto enrolement for which the previous Labour government was a champion has seen millions of workers entering the pensions market but the mismanaged timetable will leave millions left behind.

And the light touch regulation, - particularly of Master Trusts has left as many with little protection. A point now recognised by the current government after the intervention from the industry and the opposition alike!

My big concern is that fundamental challenges for our society – demographic and economic challenges - are too often being ignored by a government concerned with short term political advantage and a destructively narrow economic perspective.

We need a bit more honesty from government about what these challenges are and about who will be the winners and losers from the reforms they propose.

Friends, the demographic challenges that face our country are as great today as they were under the last Labour government, when we commissioned Derek Wanless to look at how we might pay for the care of our aging society and Adair Turner to look at how we might fund our pensions.

  • In twenty years, there’ll be an extra 3 million people of pensionable age in Britain.
  • In thirty years, there’ll be an extra 4 million.
  • In forty years, there’ll be an extra 5 million.

More and more retirees – and a static or shrinking base of employees to support them.

Employees living in an era of endemic job insecurity, increasingly flexible labour markets and wage stagnation.

This decade will see the lowest rate of wage growth not just for a generation – but since the 1920s.

Is it any wonder that savings ratios – (the amount that households have left over after everyday spending)are plummeting?

  • Down from 12% to 5% since 2010.
  • While personal debt has passed £180bn

And is it any wonder, either, then that pensions savings are taking a hit too?

Among the baby boomers, age 55 to 74, 40% have yet to start saving for a pension.

And when approaching pension age, their average pot is just £63,000 – enough to deliver a couple of thousand a year from a private pension – about half of what the Joseph Rowntree Foundation says you need to hit a retirement income of £13k pa, taking into account the £8000 you might get if you draw the full state pension.

Those are the sort of cold facts we need to be talking about in parliament – the fact that you need a pension pot of at least £300k to have an income of £25k pa – not the simplistic assertions and political spin we have had from governments of the past and today!

We owe it to the nation to be honest about the challenge we face and enable people to make informed choices about their futures.

Because the spin without substance and sleight of hand come back and bite us all in the end.

WASPI

That’s what we’ve seen in the current controversy about the impact on women of the equalisation of state pension age that the Conservatives first implemented in 1995 and compounded in 2011.

Lost in the rhetoric about fairness and equality, was the cold reality that women born in the 1950’s, many of whom started work in an era before the equal pay act and who despite it have suffered lower pay and worse terms and conditions throughout their working lives, were both ill-prepared and short changed by the Government.

Now the pensions lobby is right to demand today that women are fairly treated by our pensions system in future, but we have to also secure fair play for those who have lost out most dramatically through past changes.

And Labour has continued to press the government to make good on their earlier promise to protect through transitional arrangements those women who have been asked to wait far longer than they had planned or imagined to access their hard earned pensions.

SINGLE TIER STATE PENSION

Labour will also continue to ask that the Government is honest about who are the winners and losers out of other aspects of pension reform.

The new single tier state pension at £155.65 a week is trumpeted at every occasion – and for many its simplicity, and its level will be a benefit.

But not every pensioner will do well out of it – in fact far from it, and future generations –

The very generations for whom higher housing costs, lower wages and greater insecurity make it far harder to save into private pensions have every right to demand what it means for them.

What, in particular does it mean that spending on the state pension as a proportion of GDP is set to fall in 2040, when the trend set by Labour in government after Turner comes to a halt, and fall again in 2060 –

When spending on the state pension will be £28 billion less than it would be under the current system.

And for individuals that means Anyone under 43 now will be worse off under the new single tier state pension than they would have been before:

  • Those in their 40s now are likely to be £13,000 worse off over the course of their retirement.
  • Those in their 30s now are likely to be £16,962.40 worse off for men and £18,418 for women.
  • Those in their 20s now are likely to be £19,032 worse off for men and £20,514 for women.

Not a set of statistics you’re are likely to hear from the Government despatch box – but true nonetheless - and perhaps why the current Pensions minister said the  government was guilty of mis-selling the new pension before she joined their ranks.

Pension Freedoms

Let me turn now to the biggest reform that the Government has undertaken since they came to power as part of the Coalition in 2010.

The so-called Pensions Freedoms, that granted a right to all pension savers to access their pots after 55 and did away with the need to buy an annuity thereafter.

This measure has been widely welcomed, and, as I said earlier, there are clear benefits in getting rid of some restrictions for some savers and allowing people to invest or spend their money as they choose.

But I believe it was nothing short of a dereliction of duty by the Government to introduce these changes with so little notice or consultation and so little sense of the risks involved for individuals, pension providers or the society we make up.

And the more fundamental reform of Investment Management Costs has not been addressed. I would argue that no good reasons have been put forward for why all the costs of investment management, both visible and hidden, should not ultimately be fully disclosed.

They are after all genuine costs borne by the investor. Recent studies have shown that hidden costs are at least as high as visible costs, if not much higher. Full transparency could be introduced in stages”.

“If total investment costs are not ultimately disclosed in full, then this leaves two open questions:

(1)                     How can there ever be an effective and meaningful cap on charges?

And

(2)                     How can active investment managers ever assess their true valued added?”

Something that the government itself has acknowledged in its reform programme for the Local Government Pension Scheme Funds”.

So’ at a stroke of a pen, The Chancellor changed the pensions industry in the most fundamental way imaginable –creating a de facto saving vehicle – an ISA or your piggy bank with little transparency and the advice industry rapidly playing catch up.

Yes, in our era of low interest rates the returns on annuities were poor for many – but then we have to ask if the value of the security they provided – for individuals and the collective – has been properly weighed – and if the cost of insecurity – and inadequate pension provision – that may await a whole generation of pensioners – has been tested too.

Yes, it’s your money. But is 45 minutes guidance, from Pension Wise or anyone else enough to tell you how to invest it wisely?

That seems quite a leap of faith to me!

And counter to all established assumptions about how people think about saving or evaluate how long they are likely to live and how much money they’ll need.

Crucially, alongside the decline of employer-backed Defined Benefit schemes, Pensions Freedoms and the end of mandatory annuity represents a massive shift in risk from a shared liability between the individual, the employer and the state – to a far greater emphasis on the individual alone, with a less generous state as a distant back-stop.

And while freedom and self-reliance are desirable virtues, so too is the collective support and mutual insurance that come through secure work, fair pay– and pensions that allow us to pool risks and share rewards.

That’s the debate that my party needs to lead for the country.

And the Government has to step beyond their soundbites, treat savers with more respect and be honest about the real challenges that they and their pensions will face in the future.

As my colleague the shadow chancellor stated this weekend: “Osborne needs to stop ducking the big decisions and putting the interests of his party ahead of those of our country”.

The Future

Labour has begun that debate in earnest with the publication of the Professor David Blake, report of the Cass Business School a vital report we commissioned on Retirement Income,

We will set out the principles that we believe need to underpin pensions policy – and we will start from an assumption that it is never enough to ask the individual to fend for themselves.

The current government may believe you’re on your own, but Labour does truly believe that there is strength in unity and security in society.

Professor Blake’s review highlights major challenges that need to be addressed by government if we are to ensure people can retire with sufficient funds to live with dignity in later life. 

This expert review asks serious questions about the sustainability of our current pensions system, and the increased risks being borne by individuals after recent Government reforms.

The relative popularity of the Pensions Freedoms reforms should not obscure those questions and Professor Blake is right to challenge Government and employers to play their part in mitigating the danger that pensioners who have saved all their lives may still have insufficient funds to last them through retirement.   

These problems are only growing for younger generations who are finding it increasingly difficult to put aside the 15 per cent of lifetime earnings that Blake reminds us is needed for an adequate pension.

In my view, the Chancellor should address these risks in his forthcoming Budget and resist any temptation to stealthily raid long term pension provisions to offset any short term political problems caused by his mismanagement of the deficit.

The Chancellor should be incentivising increased saving, not reducing people’s capacity to put aside funds for retirement.

A future Labour Government would not be in the business of reversing all the reforms made by this government – savers and the industry need some stability right now –

We want to work with stakeholders, providers and employers to tackle the three major challenges I believe we need to deliver on

  • Simplicity
  • Transparency
  • Regulation

It must mean a new honesty about the scale of the challenges we face.

A new honesty about the contract between the citizen state and the market and between the present and future that our pensions represent.

To quote a great reforming Prime Minister of the past when introducing the state Pension a century ago, Lloyd George talked of ‘bringing forth the fruit of security for our society’

: a pension that will provide an income you can live on in retirement, - for the whole of that retirement.

However great the economic and demographic challenges we face today, our new contract between the Citizen, State and the Market should be nothing less. 


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