UK - JENNA TOWLER talks to pensions minister ANGELA EAGLE about Labour's plans for the pensions landscape - should it retain office.
Angela Eagle has headed up Labour’s occupational pensions policy for the last nine months.
As the general election looms, the potential for change – either in the form of a Tory government minister snaffling her title or the inevitable cabinet reshuffle in the event of a Labour win – at the department for work and pensions could see yet another politician steering the ship.
But Eagle remains firmly ‘on message’, never deviating from the plans set in motion by the Turner Commission and put into place by the Labour government.
She says she has been wrestling with a whole range of issues since starting as pensions minister in June 2009 but, should she remain in office, the top priority will be the delivery of the National Employment Savings Trust in 2012.
Eagle says: “There is a great deal of work going on to make that a practical reality. Clearly that is important to address this on-going market failure in the private sector for medium and lower earners.
“That will give up to 10 million more people who are not saving into an occupational pension with a guaranteed employer and government contribution, a chance to do so. That is a top priority and ought to be for any government that comes in.”
The minister also says other issues, such as making the basic state pension more universal and fairer, are part of the Turner Commission too.
“Some of that is coming in this April, it will essentially reduce the number of years that are required to ensure individuals get access to the basic state pension in their own right. That is part of the reforms as well, it is important that is recognised.”
Eagle continues: “Linked to that is the commitment to re-establish the earnings link. It is there, it is legislated for. I hope we will be doing that by the end of the next parliament, but I hope a lot earlier than that.”
Early access has potential
The topic of allowing early access to pension pots has been mooted by the opposition for many months, but Eagle warns there has been little substance to the Conservatives’ plans.
“There are some potentially interesting aspects around early access to pension pots. I think we need to remember that it should be within certain constraints.
“At the moment we have a problem of under saving for pensions, we have to be careful we do not get into a circumstance where people empty their pension pots too early, especially given the tax privileges that are given to pension savings.”
Eagle adds there has been “conflicting evidence” on whether early access would increase pension saving.
“I have an open mind about open access as long as it does not diminish pots too soon. Given the tax position of pensions it would be quite complex.
“Although they are saying they are going to investigate it, they haven’t said what that might actually mean. There are many practical difficulties.”
Higher rate tax changes
Eagle remains adamant the changes government wants to make to higher earners tax relief are “defensible”.
“I do not think it is fair to have a look at what has happened to the way the tax regime actually works and how that is accumulating benefits in the very top, without changing it.
“The changes we announced in the last budget only affect 2% of people, they are the very top of the earning range. At the moment the distribution of pension tax relief means 2% of savers get 25% of tax relief that is actually given out.
“With changes to the 50p tax rate that would have got worse. It is not fair or affordable to grant the biggest incentive to save in a pension to those who need it the least.”
Eagle adds: “I think it is important that we spread the concept of pension tax relief to those on modest or low income, and I think the creation of NEST will actually mean we can begin to spread the benefit of pension tax relief to those who do not currently benefit from it.”
No DB magic bullet
On the issue of dwindling defined benefit provision Eagle highlights there are still 2.6 million people accruing rights and the decline in provision has been a long-term trend.
“I think we have to recognise that the decline in defined benefit schemes started when I was still at school in the 1960s. This has been a long-term trend, there have been a number of reasons for it. There is no magic bullet, if there was I would have applied it by now.
“We have got an issue of increasing longevity, we have got global businesses not wanting to provide that same kind of coverage any more, we have got the sectors that historically provided that kind of benefit being less important in the economy than they used to be.
“That is what NEST is about really – trying to rebuild some of that. That does not mean we can’t try to do things to make it easier for DB schemes to be maintained.”
She says the rolling deregulatory review will continue and will make things easier for DB pensions to be maintained.
“There are quite a number of complex, technical areas that we are committed to looking at. It is important to recognise that there is a balance to be struck between the rights of pensioners that have accrued rights by being in these schemes and the cost of employers that are offering them.
“It is no good us reducing costs for employers if the reduction in cost does not lead to any change of behaviour in terms of closing down schemes. We need to get something in return for legislative easements. It is that kind of debate we have all the time with those who represent employers in the DB space – we have a two-way ongoing dialogue about the things that irritate employers providing these benefits.”
On the trustees’ role in stabilising the financial world she says: “Corporate governance currently requires occupational pension schemes to have a statement of investment principles, and I would certainly expect trustees to want to be involved in that – whether it be social or ethical, and certainly vote on things like remuneration policies.
“It is possible to see some systemic issues that trustees might want to consider in addition to simply maximising returns – that is a matter for them really.
“My view is that we need as much openness and transparency as possible and the more trustees engage in their duties in this respect the better.”
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