March 23, 2014 2:55 pm

Labour party gets behind flexible UK pensions

Labour has belatedly swung its weight behind government plans to overhaul pensions, several days after shadow chancellor Ed Balls warned that the policy could leave many people “disadvantaged” in retirement.

After the Budget on Wednesday, Mr Balls welcomed the “flexibility” of the new plans, under which people who have saved for retirement will no longer have to buy an annuity to provide them with an income.

Yet the shadow chancellor also spelt out his fears about the damaging implications of the move, which should become law from April 2015 subject to consultation.

“Will we have people disadvantaged or taken down the wrong road?” he said on Wednesday afternoon. “Will we have people running out of money and forced to rely on the welfare state? . . . It could be a risky proposition.”

Other Labour MPs including Tom Watson have come out against the proposals, with some suggesting that they could be abused by tax avoiders.

Steve Webb, the Lib Dem pensions minister, prompted a stir on Saturday as he said: “If people do get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice.”

Since then, however, with the Tories gaining in the polls since the Budget – and widespread support for the pension reforms – Labour has shifted its position.

A Survation poll in the Mail on Sunday put Labour at 35 per cent, just one point ahead of the Tories on 34 per cent. A YouGov poll for the Sunday times also put the Tories one point behind the opposition at 36 and 37 per cent respectively.

Rachel Reeves, the shadow work and pensions secretary, said on Sunday that Labour had long advocated reform of the annuities market, but still needed to see more details about what the changes would mean in practice.

Ms Reeves said that people would make sensible decisions, rather than splash out their savings on frivolities such as sports cars.

“We can trust these people to make sensible decisions on how to use their money at retirement,” she said. “I would argue that they [the coalition] have not gone far enough.”

Iain Duncan Smith, the Tory welfare secretary, said that Labour’s support had only belatedly been “dragged out of them” after days of mixed messages.

“They [Labour] don’t trust people, they think the government spends your money better,” he said. “Labour doesn’t trust people with their own money.”

Labour has set out three criteria under which they support the policy change; that people will get adequate advice; that the policy will help lower and middle income taxpayers; and that there will not be an inordinate cost to the exchequer.

Mr Duncan Smith said it was a “very simple principle” that people who had saved for decades should have control over that retirement income.

“They’re hardly going to want to speculate,” he said.

For those whose investments did not flourish there would still be the safety net of the state pension, he added.

But some experts have warned that many people will now put their money into the buy-to-let market on retirement, creating even more demand in the housing market.

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