Want radical pension reform? Look in the Mirror

At this general election, no-one can claim it was “The Sun wot won it”. Nor even the Tory-supporting Telegraph, Times or Mail (or this pinky-blue newspaper). Somewhat oddly, the Guardian lost its heart to a short-lived Liberal Democrat television personality. But only the Daily Mirror can really be criticised for backing an unpopular Labour incumbent – and that is a pity, as it’s arguably the only newspaper (apart from this one) offering a blueprint for a better financial future.

I realise this is an old-fashioned view. Nowadays, I’m told that the politically savvy only read websites, blogs and Tweets. If that’s the case, though, why did Thursday night see the Twitterati reporting BBC and “old” media stories, The Terminator Skype-ing the wrong prime minister, and teenagers rolling up to polling stations at 9.59pm – having only just discovered they couldn’t text “Vote Nick” to 82010? (I couldn’t help but notice that many voter “lock-outs’ occurred in constituencies with large numbers of students and pubs – including the constituency where I first tasted democracy, if not beer, at an altogether more responsible 11am).

No, I believe the Daily Mirror has far more relevance when it comes to radical policy on financial services – all largely thanks to one political heavyweight. Not Cecil King, Hugh Cudlipp, Joe Haines, Alastair Campbell or, er, Piers Morgan. I refer to the former MP for Buckingham turned newspaper proprietor Robert Maxwell. Inadvertently, he has helped to identify a reform of pensions that could now make long-term saving more attractive to all – and earn the support of any coalition or minority government.

It’s referred to as “access to pension savings during the accumulation phase”, by the Society of Pension Consultants (SPC), in the paper “Pension Priorities for a New Government”. It’s perhaps better understood by former Mirror Group employees as “dipping into the company pension fund”. This time, however, it would be the schemes’ members – and not the late Cap’n Bob – doing the dipping.

Under proposals published this week, the SPC suggests that company pension schemes should be allowed to give members “limited access” to money they have already paid in, while they are still working. It argues that many younger employees are put off saving into a pension because their money is locked away until they reach at least age 55. So it envisages a new cash withdrawal facility, as an alternative to the tax-free cash available at retirement.

This is not a new idea – it was even included in the last government’s proposals to let pension schemes pay higher earners’ extra tax bills. Nor is it damaging to overall pension income – “since this would only be the discounted amount of the cash sum that most members would take on retirement, early access would not materially adversely impact the overall benefit from retirement,” explains the SPC.

Other SPC proposals include a further co-opting of an infamous Maxwell tactic: “borrowing” from the pension scheme – but, this time, it would be scheme members borrowing within set limits and time frames, and with payments out subject to tax.

In addition, the SPC is calling for a firm commitment that tax relief on pension contributions and trivial commutation (the ability to take a small pension fund as a cash lump sum, rather than a minimal annual income) will remain part of the pension system.

“Creating a genuine and widespread savings culture is a mammoth task but by allowing some form of early access and – critically – making the tax regime more than political tokenism and a genuine incentive for all to contribute, the next government can make serious strides forward,” argued SPC council member Kevin Legrand earlier this week.

He’s not alone in suggesting new policies. This week, Pension Capital Strategies – a firm that advises companies on running pension schemes – urged an incoming government to reverse the effective double taxation of pension savings for high earners: taxed when deducted from salary, and taxed on payment. “We fear that once companies are forced to take all their high earners and key employees out of their pension schemes, then enthusiasm to maintain them for other employees will be hugely reduced,” warned managing director Charles Cowling.

Even pension providers have responded to the election result by proposing policies the parties can unite on. On Friday, Axa Wealth put forward a 10-point pension agenda including simplification of means testing to remove disincentives to save, addressing the gap between public and private sector schemes, and – in an echo of SPC –“a review of flexibility and access to pensions if the state retirement age is increased”.

Dipping into a pension fund was unconscionable after the Maxwell scandal of 1991. Thinking the unthinkable on pensions got minister Frank Field into trouble in 1997. But might we finally get some consensus blue-sky thinking in 2010?


Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.