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Fabian Society and Bright Blue paper finds convergence on the next steps for pensions reform between political left and right

Bright Blue and the Fabian Society – two leading think tanks from the right and left of British politics – today publish a joint paper exploring the views on pensions reform of Conservative and Labour politicians and policymakers. The report finds significant areas of agreement between the political parties and concludes that a new phase of consensus building on pensions is desirable and achievable.

Consensus continued? The next stage of pension reform is written by the chief executives of the two think tanks Andrew Harrop (General Secretary, Fabian Society) and Ryan Shorthouse (Director, Bright Blue). The paper shows that while the two political parties disagree on much of the detail there is significant convergence on key areas of pensions policy:

  • Gradually increasing auto-enrolment contributions for workplace pensions – following careful assessment of the impacts of the first phase of the policy after it is fully implemented in 2019
  • A major new pensions offer for the self-employed
  • Better governed, larger Defined Contribution (DC) pension funds and support for CDC (Collective Defined Contribution) pensions
  • Further reform to pensions tax relief, such as a single rate of tax relief
  • Maintaining the generosity of the state pension but possibly ending the ‘triple lock’

Two likely areas of continuing political disagreement are future increases to the state pension age; and whether to steer unengaged pension savers towards a guaranteed income for life. But even on these issues, the report argues there could be scope for some accommodation.

Andrew Harrop and Ryan Shorthouse, report authors, write:

It is difficult in politics to develop cross-party consensus on major public policy questions. But when consensus emerges, politicians and policymakers should be proud not embarrassed. Such consensus has led to necessary and successful reforms in critical policy areas, from climate change to pensions.

After 15 years of reforms to pensions, characterised by significant cross-party agreement, it is now time to think about the next steps. Bright Blue and The Fabian Society have explored whether there is scope for future reform based on cross-party support. Unsurprisingly, there are important philosophical and policy differences between the parties, which need to be debated publicly. But there are also areas of consensus on what to do next. Some of these ideas are radical but also necessary. That is why the Conservative and Labour Parties should be open to coming together to support them.

Once 8 per cent minimum contributions are achieved in 2019 there is an opportunity for left and right to explore, be innovative and find consensus in the next stage of auto-enrolment. This could address not only the level of future minimum contributions for different types of employers and employees, but whether there should be more fungibility in how savings above the 8 per cent contributions can be deployed. And the success of auto-enrolment, which is increasing the tax relief bill, could in the years ahead provide the Chancellor with a strong fiscal argument to reform pensions tax relief.

Full list of conclusions

There is continuing cross-party support for auto-enrolment into workplace pensions, including extensions recently announced by the current Conservative Government for implementation in the 2020s. Both parties would like to see higher contribution rates over time and while they may disagree about the pace of change there is scope for consensus building. This could include agreement on more fungibility in the spending of savings made through auto-enrolment.

Both political parties are united in the aim, but not entirely in the methods, to ensure pension schemes are better governed and consolidated into larger funds.

The Conservatives and Labour are both attracted to auto-enrolment for self-employed workers in principle. But there are political obstacles to developing an HMRC-based system and Conservatives want to test less-statist options first.

Many Labour and Conservative politicians support the idea of flat-rate pensions tax relief. Chancellor George Osborne considered this reform but it is not a current priority for HM Treasury. The cost of tax relief is rising, however, so the case for change may come sooner rather than later.

Both Labour and the Conservatives support the design of the new state pension but would ideally abandon the ‘triple lock’ and replace it with earnings indexation if this could be done without political fallout. There is clear disagreement on increases to the state pension age but scope for building consensus on new flexibilities when approaching the pension age.

Labour is suspicious of the Conservatives’ flagship pension freedoms initiative that gives people control over their pension pot after the age of 55. But it has chosen not to oppose the policy directly. The Conservatives have accepted some regulation to prevent abuses of the new system but their priority now is to promote active decision making and product innovation. Labour will emphasise regulated pathways and are likely to press for these to give unengaged savers the option of a secure lifetime income.

The Conservative government is introducing CDC pensions in response to emerging employer interest. Labour is going to champion this model as an alternative to the new individualised pension world.