Deeper market intervention is needed to deliver pensions people can trust and a real solution to the cost of living crisis to which high pension charges are contributing.
Gregg McClymont is a Labour MP and is the shadow pensions minister
A pattern becoming familiar in British politics continued this week: Ed Miliband’s knack for making the political weather. Well obviously you might say. After all anyone watching PMQs was in no doubt that politics continues to be dominated by Labour’s energy price freeze pledge.
Yet energy is not the only sector where Ed’s determination to cap prices and reset the market has forced the pace. Tuesday evening in the House of Commons saw another. When the pensions minister Steve Webb announced the Tory-led government will cap pension charges, Ed had another victory as Labour received the greatest accolade any government can pay the Opposition: an attempt to steal its clothes.
Because in adopting a pension cap the government has done a spectacular u-turn. Last year when Ed Miliband warned that pensions charges were a scandal waiting to happen the government joined with the big pension companies and said he was ‘scaremongering’.
When Ed called for a cap on pension charges the government said the market was ‘vibrant’. Sound familiar? And at the same time as the government denounces Labour’s call for a freeze on energy prices as Marxism the same government promises to you’ve guessed it, cap pension prices. Spooky.
Labour welcomes the government’s spectacular pensions u-turn. A cap on charges is part of the solution to the overwhelming evidence of market failure. But Labour has always argued for a price cap as part of a wider reset of the pensions market. The government would be foolish to think that a cap alone will ensure value for money pensions for the 10 million savers being enrolled automatically in a workplace pension for the first time.
First of all the government has to set the cap at the right level including all appropriate charges. Already one of the UK’s biggest pension companies Legal & General has come out and said that the cap level proposed by the government is too high.
Moreover the government has not done its homework: as things stand government does not have full sight of the various kinds of costs and charges levied by pension companies and fund managers. That is, there is not full transparency on price. Which means as things stand the government could not cap pensions with any confidence that some charges were not still hidden.
That the government on Tuesday night voted down Labour’s amendment to the Pensions Bill which would have solved this problem is not encouraging.
More widely while the government has now accepted Labour was right on a cap it still resists the wider reset of the pensions market we propose. In a market like pensions the fundamental problem is governance of the pension schemes through which we save. Without good governance our pensions schemes will not be able to drive a hard value for money bargain on our behalf with the huge pensions companies.
This must be the starting point for a reset of the pensions market. It means the immediately lifting the prohibitive restrictions on NEST the not for profit public option pension scheme which has already driven down prices and raised quality in the marketplace. It means every pension scheme being governed by a board of independent trustees with a sole mandate to act on your behalf. It means action to reduce the long tail of small pension schemes unable to drive a hard bargain with big pension companies on your behalf.
And it means action to ensure your hard saved pension pot buys the most retirement income possible when it comes time to turn the savings into an annual income.
This is the reset the market needs. On Tuesday night the government rejected it. Adopting Ed’s price cap was a start but deeper market intervention is needed to deliver pensions people can trust and a real solution to the cost of living crisis to which high pension charges are contributing.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.