UNISONActive is an unofficial blog produced by UNISON activists for UNISON activists. Bringing news, briefings and events from a progressive left perspective.

Tuesday, 25 March 2014

Pensions Freedom Or Pensions Fiddle?

Forgive a cynic, but Gideon’s pension changes last week stirred memories of previous pension changes. How many other old Nalgo stewards were transported back to the last pensions mis-selling scandal, when Thatcher deliberately encouraged members of public sector schemes to move their pension pots to private providers? Despite the best efforts of the union, some people were tempted and are now living with the consequences – usually a much reduced pension, in some cases no pension at all.

Gideon talking of giving people freedom over their own financial affairs therefore stirred latent suspicions. Somehow Tory talk of freedom usually does that. ( hink of "trade union freedom" as the Tories envisage it, which is basically about strangling trade unionism ). This is a point emphasised by John McTernan when in the Guardian he writes;-

"It is time to remind the public that the Tories do not come to this issue with clean hands. Their last major pension reform was the creation of personal pensions. Remember them? Pension mis-selling was the biggest financial services scandal until the global financial crisis. You can bet that the sharks are rubbing their fins in anticipation of selling you an "innovative" product that will have high charges and low returns."

McTernan has a further point about the understanding of annuities. Thankfully, for those of us in public sector schemes, understanding of such financial instruments is not on the agenda . But how many of those in defined contribution schemes have the knowledge to decide on how to invest for a potential return over twenty or thirty years? The annuity market is complex, and it is this very complexity that allows pension providers to perplex and bamboozle. As a category of investment, many commentators believe that annuities are in themselves a form of collective provision based on the principle that risks are shared.

While current returns are disappointing, interest rates on which those returns are based cannot stay at the current levels forever and few doubt that it was a market requiring reform. If many withdraw from that market ( as will happen when the requirement to have an annuity is withdrawn), it will collapse, leaving no guaranteed income for future pensioners. In the meantime the Treasury will benefit considerably from taxation on money withdrawn from schemes.

If not an annuity, then what? Several sources have mentioned that old favourite, the buy to let market. Buck the trend by plunging that savings pot into the guaranteed income of property, by ensuring a rental stream from those priced out of the property market themselves. This is yet another Tory policy that can be certain to reinforce a generational divide between those renting and those taking a profit from them, while stoking an already overheating housing market.

Not surprisingly, Britain’s biggest pensioner organisation, the National Pensioners Convention (NPC) believes the Chancellor’s real intention arising from the Budget statement is to place further responsibility for retirement onto individuals and the market, rather than seeing it as a role for the government.

Dot Gibson, NPC general secretary said: "Pensioners will be concerned that benefits such as the winter fuel allowance, cold weather payments and the Christmas Bonus have all been placed into the welfare cap, which could lead to cuts in the future, at a time when fuel bills in particular are continuing to rise. The announcements regarding a new Pensioner Bond and changes to ISAs were also rather rose tinted. 55 per cent of all pensioners receive less than £10 from their savings and 29 per cent of older couples have less than £1500 put aside. The idea that older people therefore have huge amounts of money to invest is rather optimistic".

Somehow Dot’s comments don’t seem to have been given much publicity, while the Pensions Minister comments have been. He declared that the government is "relaxed" if pensioners decide to splurge the pension pot on a Lamborghini;- though as the cheapest car in that range comes in at over £100,000 presumably applies to those who retire from banking rather than those whose pension will come from the standard company defined contribution schemes.

Auto enrolment into pension schemes was designed to ensure that everyone is saving for a future pension. Allowing people to take all their pension pots however doesn’t make the pot any bigger and belies the fact that the average worker will have a pension pot of little more than £30,000 to cover all of their retirement. As the NPC also notes, the state pension is one of the worse in Europe , and the age of entitlement is slowly increasing to 68.

Those left to carry the burden will be some of the lowest paid workers.

Warnings have also been issued about further risks .People who cash in their pensions in order to save or invest the money risk losing their right to free social care if they fall ill or become too frail to look after themselves, leading charities have warned.

On Saturday both the Joseph Rowntree Foundation (JRF), which works to combat poverty, and Age UK, Britain's largest charity for the elderly, said people without large assets who cashed in pension savings could become trapped into paying care costs which they would have avoided if the money had remained invested in a pension. Under plans for the future funding of social care, to be introduced in 2016, money held in pension schemes is not counted as an asset when calculations are made about how much an individual has to contribute to their own care. But if the money is taken out of a pension and held as savings or put in another investment it would be counted.

Jane Vass, head of policy at Age UK, said people would need to bear in mind that drawing down on their pension could make them ineligible for free social care..

"The pension pot is protected from means testing. So when it is in a pension it can't be touched but there is a risk when it comes out of that wrapper. We do welcome the increased choice but there is a whole range of risks. The better-off might be able to afford to take risks and afford to pay for advice, but it becomes difficult for those lower down the economic spectrum."

So pensions’ freedom or pensions fiddle? Several right papers reported over the weekend that Gideon’s budget has resulted in a bounce effect in Tory poll ratings . At least some of the people who will benefit because they will have substantial pension pots will have been brought back to the Tory fold. For many more, positive headlines will have had a positive effect, demonstrating yet again that you can fool some of the people some of the time.

The more this policy is examined, the more unintended consequences will become apparent, while the stark fact remains that pensioner poverty is likely to be with us for some time to come; some generations in fact. That factor is the one we should remember.

Jane Carolan