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Industry uncertainty over UK election outcome

UK -- The pensions and investment industry response to the outcome of the UK general election was one of no surprise at a re-elected Labour government with a sharply reduced parliamentary majority.

But views were divided on its implications and the future actions of the new government.

With most of the results in on Friday afternoon, predictions saw the final result of Thursday’s poll being a government parliamentary representation of 355 seats slashing its majority to 66, from 167 in 2001, and the opposition Conservatives gaining more than 30 seats to around 200 and the Liberal Democrats lifting their tally by 10 to 62.

Tim Keogh, worldwide partner at Mercer, told IPE that he was struggling to think of any implications that the government’s slimmer majority would have on pensions. “I think that the package of private sector reforms, the Pension Protection Fund and so on is already in train and changes to the composition of the government’s parliamentary representation won’t make any differences to that.

“Maybe it reinforces the need for the government to actually do something following the Turner Commission’s report rather than leave the reform of state pensions in the long grass. But I think that they were starting to accept that even before the election.”

“Most of the managers that SEI invests with viewed the election as something of a non-event with the obvious already factored into market expectations,” said Nicola Kerslake of SEI’s investment management unit. Andrew Slater, head of institutional strategy at SEI, agreed. “It is no surprise to anyone that Labour has been re-elected.”

But he added: “Unwilling to face the issues head on as part of their election campaign, Labour kicked all the political hot potatoes to the other side of the election. The hottest of these was probably the pensions issue.

“We are now facing the other side of the election and they must now address this issue. With one of their pensions ministers, Chris Pond, losing his seat and the wily [Conservative pensions_spokesman] David Willets breathing down their necks from the opposing bench it will be interesting to see what happens over the next few months.

“Surely the pensions issue cannot be avoided any longer.”

For Penny Green, chief executive of SAUL Trustee Co. the trustee for the University of London non-academic staff pension scheme, “it was disappointing that nobody seemed to address some of the important issues concerning pensions in the election campaign. But as a pension manager I think that the one thing that the election has delivered is a degree of stability because, with the same government coming in, I don’t anticipate any radical change to the legislation that has already been introduced that might have followed from a complete change of government.

“But having said that, I gather that the Labour Party was promising another pensions bill in 2006-2007,” Green added. “But that might be addressing state arrangements rather than occupational or private arrangements. So maybe we will still get that degree of stability.”

For Raj Mody, pensions consultant with Hewitt, this aspect is a potential major problem. “In the run-up to the election there was a rather cryptic reference by the Labour Party about a new raft of legislation that it had waiting on the sidelines that it said would ‘no doubt surprise the industry’,” he said.

“My take on that is that surprise is the last thing that the industry needs right now, and it’s rather worrying to think that the government has been developing yet another round of legislation when the industry is up to its neck in dealing with the current pace of change resulting from the Pensions Act 2004 and the Finance Act implications that will kick in this year and next.

“So what is this legislation that the government has waiting on the sidelines and what are its plans to properly consult with the industry?”

Looking to the future and the challenges the industry will face, Mody said: “One of the great unanswered questions at the moment is where the government will set the bar in terms of pension scheme funding and to what level it expects companies to fund pension schemes.

“At the moment we have this great uncertainty because of the government’s apparent inability to resolve the conflict between trying to ensure member security on the one hand and affordability to business and employers on the other.

“The government has not managed to square that circle and it’s leaving companies and schemes and other government agencies like the pensions regulator in a state of flux and planning blight because we don’t have a clear pensions policy that is being followed through to clear legislation as to what that benchmark should be.”

But Christine Farnish, chief executive of the National Association of Pension Funds, was considerably more sanguine. “The result provides the government with an unmissable opportunity to really get to grips with long-term pension reform, “ she said in a statement. “Ministers have – quite rightly – said they will wait until the second report of Adair Turner’s Pensions Commission in the autumn, before formulating its reform package. They must then consult as appropriate, and seize the chance to establish a broad political consensus around a lasting programme for change.

“Our view is that such reform must include a fundamental simplification of the state pension system, and better incentives both for employers to offer workplace pensions, and for workers to join them.”

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