David Prosser: Taking the politics out of pensions

Wednesday, 14 October 2009

Outlook Less than a week after hosting a Conservative Party conference at which shadow Chancellor, George Osborne, pledged to raise the state pension age, Manchester Central today welcomes 1,000 delegates who will discuss nothing but pensions for the next few days. Top of the agenda for the National Association of Pension Funds' annual get-together is the issue of how to reframe the debate both Labour and the Tories are having on the cost of pension provision.

What rightly concerns the NAPF is that all discussion about pension reform, from raising the retirement age to cutting back on public sector scheme benefits, is now framed within the context of the parlous state of our public finances. Or to put that another way, the only pension reform on the agenda now is change that results in cost savings.

For the NAPF's members, who are the UK's work-based pension schemes, that is troubling. They have been battling their own financial demons for many years, with the cost of providing an occupational pension scheme having doubled since the 1960s. Rising life expectancy rates, fewer tax reliefs, lower investment returns, more regulation: all of these factors make providing pensions through the workplace increasingly unattractive to employers.

Yet provide them they must, thanks to legislation requiring all employers to at least offer access to a pension plan. And from 2012, their obligations become more onerous, with new laws requiring automatic enrolment of workers into schemes, including the new personal accounts.

The NAPF says that without more help, employers will find the cost of the new system difficult to cope with. Many employers will level down the pension benefits they offer to the bare minimum that is legally required. Overall, the reforms may result in greater numbers of people saving small sums for old age, but they may also produce a much lower standard of provision.

George Osborne's promise to return the £5bn annual tax incentive withdrawn from pension schemes in 1997 by Gordon Brown would be helpful, says the NAPF, though it is not clear when and how this pledge might be delivered. But a less prescriptive approach to regulation is also needed, as is more work to boost the confidence of employees in their pension funds. Even the 2012 reforms need to be fleshed out, with crucial detail on how they will be implemented still to be finalised.

This week's conference at Manchester Central will not make headlines like the venue's last event. But for a generation of workers, the success of the NAPF in making its case to the politicians – the main parties are all represented – might just have a more enduring effect on their financial well-being.