The confusion around the policy intent behind the Lifetime Isa highlights why we need long-term thinking on retirement savings, says The People’s Pension director of policy and market engagement Darren Philp
It is an age-old problem: politicians generally do not think long term.
And who can blame them? After all, they want to keep their jobs and to do that they need to show that they are making an impact, and making an impact now, not 40 years into the future.
They can be certain that, in a century from now, nobody will be chasing them to make them explain themselves – even given the average age of a member of the House of Lords.
Many people argue that we need to take the politics out of pensions. This would be near impossible and would not be a good idea in any case.
We live in a democracy, after all. Why bother having politicians – indeed, why pay for them? – if they do not make the big decisions on how much a government spends, how we all get taxed (or tax relieved) and how our society looks after its citizens?
Politicians need to take responsibility for supporting the public in achieving the best retirement outcomes. But this responsibility must cover future generations too, not just those retiring today.
So we need policymaking that will truly stand the test of time. It needs to be joined up, and to be as resilient as possible to guard against the inevitable power games that arise between the Department for Work & Pensions and the Treasury, let alone between successive governments of different colours.
So how should we do this? I would argue that we need an Office for Pensions Responsibility, or ‘OPR’ for short. This body would not exist to make decisions – we have politicians for that. But it would have a major role in holding to account the government of the day on its long-term savings narrative.
It would also be there to analyse whether pensions policy was working in a joined-up way and to share its findings with politicians and the public in a transparent and timely manner.
“Another quango?” I hear you scream. I have some sympathy with that view. However, in this case I would argue that what may look like an extra drain on the public purse would be a small price to pay for a sensible pensions policy.
We have been here before, of course. The independent Pensions Commission that gave us automatic enrolment showed what could be done when people are specifically tasked to analyse evidence and think about the long term. It clearly articulated the trade-offs that society faced, set out the implications of what could be done to address them, and built much needed consensus.
The world has changed a lot since the Pensions Commission reported. But an independent body with the power to analyse, scrutinise and publicly report could go some way towards getting governments to think beyond their five-year term.
The Lifetime Isa provides a useful case in point. While it is an interesting idea in its own right, the industry consensus seems to be that it will lead to a pensions Isa via the back door.
But let’s step back from the wider politics for a moment. Has anyone explained how the introduction of the Lifetime Isa will impact on auto-enrolment, especially on optout rates?
Has anyone analysed and reported on what the first-home element might do to house prices, or to the adequacy of people’s retirement savings? Has there been any assessment of how the Lifetime Isa fits into the Government’s wider savings strategy? In fact, does the Government actually have a wider, truly cross-departmental savings strategy? The answer, on all fronts, seems to be no.
I am not arguing against the Lifetime Isa as a product, but one could claim that, to this point at least, it has not been properly thought through. An OPR would provide answers to some of the questions above, and would make the government of the day accountable for its actions. It would not solve all our problems when it comes to thinking for the longer term but it would add greater transparency into the mix.
That, at least, would be a start.