A review of the UK’s defined benefit (DB) pension system has been cast into doubt by today’s election result, according to a former minister.
The Conservative Party lost its majority in the lower house of the UK parliament following yesterday’s vote. The shock result means prime minister Theresa May – who was expected to win in a landslide when she called the election less than two months ago – is set to form a coalition with the Democratic Unionists (DUP), the largest party in Northern Ireland.
Conservative pensions minister Richard Harrington had begun a wide-ranging review of DB scheme regulation earlier this year in the wake of high-profile scandals that played out last year.
But with negotiations with the European Union about the UK’s exit from the bloc due to start in less than two weeks, former Labour pensions spokesman Gregg McClymont told IPE major pension reforms were likely to be abandoned for the foreseeable future.
McClymont, now head of retirement savings at Aberdeen Asset Management, said he would be “amazed” if the green paper published by the Department for Work and Pensions (DWP) in February went much further in its current form.
“A delay was always likely given Brexit, this has just taken it to a new level,” he said.
McClymont – who lost his seat in the 2015 general election – added that the downgrading of the role of pensions minister in Theresa May’s administration was “very significant”.
He said: “It’s now an undersecretary role, not secretary of state. That weakens your hand. Your voice is not so strong in DWP or the Treasury.”
Sir Steve Webb – former pensions minister in the 2010-15 coalition government until also losing his seat in the last election – said the green paper would not be scrapped outright.
Sir Steve, now director of policy at Royal London, said: “The government can’t do anything particularly bold – a big shakeup of pension tax relief for example. If you can’t sell policies to the electorate you’re not going to sell them when in parliament with less support.
“The ‘anti-Philip Green’ stuff, clamping down on people who don’t pay their pension liabilities, would be popular. There are a few popular things that you could imagine would get through. It would have to be targeted and incremental.”
However, John Walbaum, head of investment consultancy at Hymans Robertson, said that while addressing “unscrupulous bosses” was likely to prove popular, passing laws would be “fiendishly difficult”.
Regarding Brexit, Sir Steve argued that politicians were unlikely to want to let the negotiations completely dominate the government’s work: “You would want to stand for election in five years’ time having done more than just Brexit.”
Saker Nusseibeh, CEO of Hermes Investment Management, agreed that the new government would likely cherry-pick popular elements of the green paper, but suggested discussions would not be conducted in public.
“I don’t think it [the green paper] will just gather dust – it may involve discussions in corridors rather than in public,” he said. “It won’t be the whole green paper. They will pick bits that everyone agrees on. It depends also what the DUP wants.”
The result
The Conservative Party remain the largest party in the UK parliament with 318 seats – 13 fewer than before the election, and eight short of a majority. The DUP has 10 seats in Northern Ireland, which would take a coalition into a majority position.
McClymont said the swing towards Labour – which won an additional 29 seats, with one still to be declared – demonstrated that the generational gap in the UK “has been fully party-politicised”.
“Generally younger voters have supported Labour but the extent of the correlation is unheard of. Driven by economic reality. If under 40 your income has been eroding and your ability to grow wealth assets is almost non-existent.
“Age has become an issue – it’s a party political divide in a way it has not been before. The correlation is so strong.
“You could argue that the parties’ promises need to catch up with that. We might get into a bidding war between who can promise the most to younger generations.”
As a result, over time auto-enrolment was set to become a bigger political issue, McClymont added, as more people entered the pension savings arena and saving levels rose.
Kevin LeGrand, president of the Pensions Management Institute, echoed McClymont’s views: “The pensions policies set out in party manifestos will sit ignored while other more pressing national issues are addressed first. However, it is nevertheless important in the national context for pensions to have a strong representation through a minister with appropriate authority.
“At this early stage it looks like the younger generation have been influential in changing the political landscape. If that proves to be correct, the recent focus of policies on pensioners’ interests on the basis of the strength of the grey vote may be reversed. This could result in a different policy approach between the generations.”
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