Think-tank pressures Labour to reverse retirement freedoms
Fabian Society general secretary Andrew Harrop said the “revolutionary” policy unleashed by Chancellor George Osborne in March would leave retirements “permanently diminished”.
He raised concerns that defined contribution (DC) pensions would become mere savings vehicles, and that more products were needed to help people turn their pots into long-term incomes.
Harrop said: “Before now politicians have always seen DC pensions as part of a strategic framework for retirement incomes, based on long-term policy objectives such as helping everyone to avoid poverty in retirement and replace a reasonable share of their previous earnings.
“This philosophy still informs the accumulation of pensions, as demonstrated by the current implementation of auto-enrolment and compulsory employer contributions.
“But now, with the Osborne reforms, the state is saying it has no view as to whether people should use their pension pot for its intended purpose of providing income in retirement.”
Contrary to pension minister Steve Webb’s concern that individuals would splurge their pots at-retirement, Harrop was more worried that many would be too frugal with their pensions.
He also argued it was unfair that employer and state contributions would essentially be funding savings accounts under the flexibilities.
Harrop said: “Even if you accept that people should have complete freedom with respect to the fruits of their own contributions, there is no reason why this should apply to the contributions of employers and taxpayers.”
Labour should revert to the 25 per cent tax-free lump sum policy and prevent individuals from taking their entire pot as cash, Harrop said.
He concluded: “There is no going back to the future. But George Osborne’s pension revolution must be dismantled within weeks of Labour getting into power. Otherwise the rot will set in and people’s expectations about the rightful role of pensions will be swept away forever.”
This follows an Australian consultancy’s warning to the UK to take a firm stance against political tampering with pensions.
Frontier Advisors director of consulting Fiona Trafford-Walker said recent political wrangling on Australian pensions had cost the average 25-year-old AUS$100,000 (£55,471).
She told delegates at the LCP pensions conference last week: “This is people’s retirement and I think to keep it away from the politicians who try to use it as a bit of a political ping-pong ball is definitely important.”
Harrop’s full comments can be read here.