Grasping the Nettle, or Not

“A week is a long time in politics”, runs the old cliché, but when it comes to decisions on pensions and savings, the 5 year electoral cycle might be far too short.

With the May 2015 General Election looming on the horizon, we’ve been treated to the latest raft of pensions related announcements from the Chancellor, and those who’d like to take the keys to Number 11 from him. Michael Johnson from the Centre for Policy Studies, has suggested that an independent Savings Commissioner could be created to elevate pensions policy moving away from the constant back and forth of party politics. Its purpose would be to develop and consult on longer term policies for encouraging the nation’s retirement savings culture.

Many of the issues around savings and retirement planning are long term by their very nature. Given the difficult decisions that can be involved, there is a temptation for politicians to kick these issues down the road for the next ‘lot’ to deal with. Strangely, politicians don’t tend to get a great deal of sympathy these days, but if your job and expenses rest on staying popular with the people, it’s clear there aren’t too many votes in telling people that they have to work longer before receiving their State Pension. However, Johnson’s point is that the policies needed to strengthen the retirement savings culture are just too vital, both for individuals and the country as a whole to be allowed to remain the clichéd ‘political football’.

His analysis is that the short-term nature of policy decisions taken by successive Governments has systematically undermined confidence and engagement in each of the traditional pillars of pension savings; personal pensions, employer sponsored DB schemes and the State Pension. The constant legislative change has been accompanied by a dizzying array of headline grabbing but sometimes contradictory messages e.g. promoting interest in collective DC arrangements on the one hand, and then announcing enhanced freedom to access individual pension pots on the other.

Johnson also lays some of the blame at the feet of the pensions and savings industry for its lack of flexibility and transparency, and, for failing to react to the changing generational demands of the so called Generation Y; those with less free income due to student debt, rising housing costs and depressed long-term salary growth. He also warns that the failure to engage this group in traditional retirement saving vehicles represents a worrying trend for the industry as a whole.

While his suggestion is that this new body would have no power to implement policy, its independent position would make it difficult for any Government to ignore its recommendations. In his view, this means it could also be able to take on the thornier issues around pensions saving and be free to make bold recommendations without the need to worry about getting re-elected.

As a rule politicians don’t tend to like giving away power. However, when it’s time for an unpopular or unpalatable choice to be made, sometimes it can be useful to have an independent body on hand to take the blame (but clearly never the credit)!