A change of government provides a rare opportunity to influence policy. John Lappin assesses how the main political parties’ manifestos will affect workplace benefits
The smart money is on the Tories winning next May, but whichever party or coalition of parties takes office, corporate advisers may have some of the answers politicians are seeking. This is because of their unique access to millions of employees.
The context for the debate is the terrible state of the public finances which political parties of any hue will have to grapple with. Most politicians also believe the UK is under-saved and under-insured but are still not quite sure what to do about it.
The most open discussion surrounds pensions. All parties are supposedly signed up to a consensus established by the Turner report published in 2005. But clear differences are emerging. On PMI, there is also little theoretical difference between the parties with all three committed to free healthcare at the point of delivery. However some experts say they expect tax breaks for medical insurance for the elderly to feature in the Conservative programme. The other significant difference is the Conservative plan to abolish the FSA, move some of its powers to the Bank of England, and establish a Consumer Protection Agency while Labour and the Lib Dems want the FSA to survive in its present form.
Other areas where corporate advisers provide services and advice such as group risk will probably not feature in manifestos but are still worth attention today to influence the thinking of new ministers.
Public Affairs consultant Cicero’s chief corporate counsel Iain Anderson predicts a May 5 election and believes that while Labour may make up some ground in the polls, David Cameron should get a majority of around 30 seats.
The Tories, he says, will bring in some sort of workplace pension. However, they are also committed to reviewing personal accounts. “I think that review could seriously undermine the timescale, indeed it may deliberately undermine the timescale. They don’t want business to say ‘this is a tax on business’ just as the economy is recovering. So I think we may be moving to 2014 and it may even be the election after next,” he says.
Anderson says the Conservatives are also concerned that personal accounts could fail and they will not want to be associated with that. He points out that nobody remembers that the Millennium Dome was actually Michael Heseltine’s idea. Peter Mandelson and Charlie Falconer got the flack for it – because it was still within the new Government’s power to cancel it.
He also believes that the Conservatives may align personal accounts with public sector pension reform, taking the opportunity to at least put new public employees into a defined contribution arrangement.
“If the private sector has personal accounts with only a DC option then why are they not good enough for new joiners in the public sector? It may be four or five years away but the Conservatives may align the two things with a personal account version for the public sector. That would then make the public subsidy quite attractive and having the public sector involved you would find that accounts would quickly reach critical mass and achieve more economies of scale.”
Indeed many pension experts believe personal accounts may not launch in the current form.Scottish Widows marketing director corporate pensions John Taylor believes that a Tory Government might turn to the private sector. He says: “In terms of the machinery itself, I would imagine they will give strong consideration to using the private sector. It would be a welcome discussion to have. The key thing the private sector would need to do is engage on the cost implications.”
His biggest concern however is that without some commitment to deal with means testing, the launch of personal accounts will be damaged by the bad publicity surrounding the losers.
Standard Life head of pensions policy John Lawson says he believes the Tories may allow the public the alternative of auto-enrolling into Isas.
He says: “They will make some changes and may offer an alternative to auto enrolment such as into an Isa as opposed to a pension. It would go down well.”
He believes that this could see take-up reaching as much as 90 per cent rather than a predicted opt out of possibly 40 per cent. He also suggests that public sector pensions may move to a system of notional DC from the current DB, but may still not be fully funded.
Michael Whitfield, chief executive of Thomsons Online Benefits, is very much in the sceptics’ camp. He believes that, even with a Labour win, personal accounts may be delayed by two years or more.
He says: “As more and more anomalies are thrown up, it is clear that they are going to overshoot 2012. I think secretly they may be rueing the day they ever came up with personal accounts. I think they will be delayed by at least two years.”
Anderson says that whoever is in power, they may be influenced by the USA where President Barack Obama has signed legislation allowing small employers to auto-enrol their employees, something that only large employers have been able to do up till now. Obama is also allowing tax rebates and pay for holidays and sick days, if they are not taken to be paid, into pensions. Anderson says Obama has been influenced in his thinking by University of Chicago economist Richard Thaler’s nudge theory, an influence Cameron has also cited.
Lansons’ public affairs director Ralph Jackman says the Tories are meeting with civil servants so they can get to grips with the policy issues they may face in government.
He says: “The Tories are in and out of Government departments including the DWP, trying to understand what it is they are inheriting. They will then have a slightly better sense of whether there will be consumer and industry risk. Of course, the interaction with means testing is going to be fundamental. Some of us argue it would be healthy and transparent if they did the review before the election but that is probably not the political reality.”
Policy affecting the private medical insurance market is massively affected by the NHS debate, and in this area both main parties are determined to outdo each other in promising the service is safe in their hands.
But opinion is divided on whether there may be some scope for tax incentives. AxaPPP healthcare commercial director Fergus Craig says his feeling is that it is unlikely, but says public finances and no spending increases mean the NHS will have to improve efficiency significantly.
“To make tax relief worthwhile a very, very large number of people would have to take out additional insurance in order to justify it. I just don’t think the Treasury would be convinced, in addition to the dead weight cost, it is a good idea. In relation to changing the system, I think it is peculiar to think the NHS is uniquely fantastic but it is fine. To move from system A to system B would give no guarantee it is going to solve a lot of your problems and it is going to cost you a hell of lot of money to move it.”
He would, however, support a more honest discussion about the limits of what the NHS can do so that people which would then allow people to insure themselves for other things such as drugs that the NHS won’t supply.
He adds that more people may take out insurance because they believe that waiting times may get longer again. However he says that, by and large, because average waiting times do not tend to fall, corporate schemes are not usually influenced by trends like this.
Jelf businessdevelopment director Wayne Pontin say the Conservatives may reintroduce tax relief for the over-60s and adds that this covers some employees in schemes that Jelf advises on.
He says: “It should never have been taken away. That has got to be considered not as a tax break but as helping the NHS. People are living a lot longer and that is because they are getting more treatment and if you can channel that treatment into the private sector, that is going to be good. One way to do that is to give financial incentives in the form of tax breaks.”
Pontin believes the UK should look at the Australian system where individual, company and state all contribute. He would also like to see tax relief come in at 50.
He also wonders if the NHS will be able to afford the full range of cancer drugs which should see every cancer becoming treatable by 2050.
“We have to take some of the politics out of the debate. It has become a hot potato. You can’t have a rational debate. Over the next ten years, if there aren’t the funds, there are going to be people suffering,” he says.
Group Risk Development (GRiD) spokesperson Katharine Moxham says much of her group’s work is to lobby on legislation such as that covering equality and welfare reform. However, she also points to the insurance industry working group report, a group of top insurance industry executives, who reported to the Treasury earlier this year, as the basis for many of the industry’s conversations with Government.
GRiD recommends that industry and Government assess the scope for a greater industry role in helping people deal with risks such as unemployment, ill-health and the need for a retirement income or long-term care. If in principle partnership is seen as positive, a moredetailed plan should be agreed, based on a common understanding of thebenefit of involving industry on a commercial basis.
Friends Provident group protection product manager Steve Browning says: “We need to find ways to incentivise employers to take out group income protection and group PMI to their employees. How that is done is a thorny issue. One idea is to link it to take up rate, where if they offer it to them all they get a tax rebate rather than offer it to a few.”
Munich Re is now considering formally lobbying the UK government to adopt the Australian system where the pension schemes provide some insurance cover on an auto-enrolled basis. The policies provide some life insurance and TPD cover with the option to increase it individually. Although the firm says Australia remains underinsured, most working people now at least have some cover.
Munich Re (UK life) head of marketing Andy Milburn says: “We’re convinced that the idea of including a level of life or disability cover alongside personal accounts is valid. A few insurers feel the same way too. At present we are considering how we can best lobby politicians on this idea”
Parties’ current pensions policies
- Pensions reforms as per “Security in Retirement: towards a new pensions system” and “Personal accounts: a new way to save” white papers including:
- Introduction of personal accounts from 2012
- Re-link uprating of the Basic State Pension to average earnings by 2012
- Automatic enrolment into personal account or employer’s occupational scheme
- Conservative policy on pensions is to be detailed “in due course”. However, the following can be noted:
- Increase the basic state pension to help stop the spread of means-testing
- Protection of accrued benefits
- Revise pension rules and regulations with an aim to simplify
- Encourage companies to offer “high quality” pension provision to all employees through these revised rules and regulations
- Implement emergency pension protection during this current period of financial trouble.
- Looking at possibility of maintaining some aspects of defined benefit schemes possibly through the implementation of “hybrid” schemes
- Investigating the feasibility of industry-wide schemes
- Investigating the feasibility of early-access pension schemes
- Looking at conditional indexation of deferred pensions and pensions payment
- In favour of the voluntary phasing in of auto-enrolment so that it is not rolled into one with the introduction of personal accounts in 2012, and lessens the potential teething problems from a “big bang” launch
- Hold a review into personal accounts as early as possible (their chief concern is that personal accounts will not bring about the huge increase in pensions saving that was envisaged)
- Restoration of the links between the state pension and earnings
- Phased introduction of a Citizen’s Pension – initially to those 75 and over – which would be paid to everyone who meets residency criteria
- This Citizen’s Pension would result in the phasing out of the Second State Pension, with any extra pension falling to occupational and private schemes.
- End mass means-testing