Election aftermath: What the Tory win means for pensions

In the first of a regular run of blog pieces written exclusively for Retirement Planner, Martin Tilley explains what the surprise Tory election win means for pensions

The campaigning has been done, the votes cast and counted but as with the best thrillers there was an unexpected ending with the Conservative Party gaining a working majority.

This unpredicted result should give us a clear path of expectation for the next five years rather than the bartering on policies, as is the way with any coalition. So how will this result impact the private pensions sector?

First of all, the fall from grace of the Liberal Democrats saw the unseating of Steve Webb, one of the longest serving and perhaps most knowledgeable of pensions ministers of a generation.

 

It had been anticipated that the void left by his departure would be difficult to fill but hopes for the future have been raised with the appointment of Ros Altmann, a person respected by the industry and someone with a wealth of knowledge that can be brought to the table.

Ms Altmann, however, is new to a ministerial post and having championed the consumer may have to adapt her thinking to the political stage and the industry. Whatever her approach, pensions should be a matter long deliberated and considered before action is taken.

It could be hoped, that as the recent pension freedoms were championed by the new government, a reversal of the changes seems unlikely, which was a worry perhaps now to be forgotten.

Manifesto pledges

The Conservative manifesto on pensions targeted the apparent imbalance of tax relief which costs the treasury about £35bn each year of which the vast bulk is received by the top 25% of earners.

Of these, a smaller proportion pay the higher rate of tax on earnings above £150,000 but it is these that have been considered fair game.

This sector was also in the sights of Labour so I cannot see opposition to the implementation of some form of restriction and am fairly convinced that these policies will be something we see in the next 12 months.

We can only hope that the industry will be fully consulted, prior to implementation, as the scaling back of allowances based on earnings above £150,000, as has been suggested, might seem like a good idea to a politician, but in reality can be hellishly difficult to implement, understand and administer in practice.

Worryingly, there was also a consensus on a crusade against pensions pricing with Labour intent on “reform of the pensions market to protect consumers from retirement rip-offs and make sure pension providers put savers first”.

The Conservatives though proposed a consumer protection minister who will stop pension companies “leaching” off savers and who will “force pension companies to publish in pounds and pence the amount they charge savers”.

‘Headline grabbing’

These policy statements may have been driven by some headline grabbing and poorly researched articles in the national press covering the costs to implement the new pension freedoms, a popular and no doubt to some extent vote-winning policy rolled out in quick fashion immediately in the run up to the election process.

The possibility of charge caps has been touted, with all product costs, benefit flexibilities and investment management fees bundled up into a product charge which can be limited. This cap or limit will have the effect that any functionality and services features within the product will also be limited.

This cap or limit will have the effect that any functionality and services features within the product will also be limited. You can’t have one without the other.

And as for putting savers first, the governing body should be aware that in order to operate in the financially regulated marketplace, pension providers’ must already uphold the principle requirement of having customers at the heart of their business strategy.

I am also a firm believer that cheap is not always good.

If it was conventional wisdom that a product must be fit for purpose and achieve its purpose for the lowest possible cost, we would all be driving around in Dacia Sandero’s, one of the cheapest cars available on the UK market but I don’t see these as being the ministerial conveyance of choice.

Pension providers whose charging structures are higher than, for example, stakeholder pensions most usually offer greater investment flexibility or other value features.

Pension providers operate to make a profit for their shareholders while pension savers do so in the expectation of a value for money product that offers them the freedoms and features they need.

This is a market of matching objectives and the educated client should be able to determine whether the product in question is offering value for money?

Education, education, education

Of course, this brings me to my final point, the requirement for an educated client.

One way of achieving this is for the client to seek regulated financial advice but another is for the client to be educated at an earlier stage, a much earlier stage and this was mentioned by the Conservative party in advance of the election.

Their original proposal to appoint Ms Altmann in the role of proposed consumer protection minister included a remit to investigate and implement a policy of financial education among the younger electorate and even in the national curriculum.

This is something that we should hope will remain on her agenda and would be supported by the financial services industry for the long term good of the nation.

 

Martin Tilley is director of technical services at Dentons Pension Management