Rachel Reeves did little to challenge the unfairness built into the state pension reforms. So how will Corbyn’s new team approach arguably the biggest pensions issue of the next 12 months?
Former work and pensions shadow Secretary of State Rachel Reeves’ recent decision to resign from Labour’s front bench is no loss to the party’s influence on pensions. Under her watch the Coalition Government managed to pass legislation that will cut the state pension of the hardest working low earners by a quarter, while Labour watched from the sidelines.
Jeremy Corbyn’s new pensions shadow, Nick Thomas-Symonds MP and Owen Smith MP, Reeves’ direct replacement, have now got their work cut out squaring the circle of Labour’s current position on state pension in terms his boss will appreciate.
The fact is, under Miliband, Labour offered no substantial policy opposition to the unfairness in the switch from the current system to the single tier pension, a switch that sees many in the auto-enrolment target market – those with little or no pension, who are by definition contracted into state second pension – lose more state pension income than they can ever hope to build up through their auto-enrolment pots.
Pensions shadow Gregg McClymont made some comments critical of the policy in the House, but these were too little too late. By then Labour had decided to back the Bill.
So why did Labour support the destruction of Gordon Brown’s redistributive state second pension and its replacement with a flat rate that gives more to those who currently have great pensions, and takes away from many of those that don’t. And will Corbyn’s team take a different view going forward?
There are obviously good things about the single-tier. Everyone thinks simplicity is good, although we won’t have that for a few decades. And some women and the self-employed definitey do well out of the new system. But so do the best-pensioned people in the country, as a result of transitional arrangements that are devastating to the retirement prospects of the poorest strivers in the country.
Just to be clear, and by way of example, Prime Minister David Cameron will be around £37 a week better off, a figure that would cost in the region of £50,000 to buy via an annuity, and will pay only an extra £7,000 in national insurance (NI) contributions for it, according to 2014 figures from actuaries Hymans Robertson. Conversely, millions of low-earners who have been contracted into the state scheme, would have gone on to build up combined basic and secondary pension in the region of £200 a week but will now be capped at the £150 or so single-tier.
The government knows selling this policy to the electorate is going to be arguably its biggest pension challenge of the next two years – unless, that is, it goes for the nuclear option on EET to TEE.
Baroness Altmann has today launched a communications exercise attempting the massive task of explaining to people what is going on.
By failing to highlight the policy’s many flaws and unfairnesses, Labour is not only letting down the people it claims to represent, but is already behind the curve if it wants to make any political capital out of a policy that will make low income working people worse off, not better. So Thomas-Symonds’ early comments on the issue will be scrutinised with interest.
So how is it that Labour came to a position that it failed to substantially oppose a 25 per cent cut in the state pension of ordinary working people? Is it that Labour thought the priority of simplicity was worth the fiscal pain these retirees would have to suffer? Was Labour in hock to contracted-out public sector workers, who even though they don’t understand the fact, do very well out of the settlement? Did Labour want to eradicate means-testing from the system at all costs, so that its policy of auto-enrolment could not face the charge of misselling workplace pensions to low earners?
This is a question that puzzled me for a long time, not least when I wrote a story based on the aforementioned Hymans Robertson figures for The Guardian. Contacting Reeves’ office for what looked like a gilt-edged opportunity for political point scoring against Cameron and pension minister Steve Webb, surely a comment from the work and pensions shadow would be forthcoming. Sadly Reeves was unable or not prepared to comment.
That was when I first started to wonder whether the reason why Labour was largely silent on the issue wasn’t simplicity, union pressure or means-testing, but because they simply didn’t understand the numbers.
This idea was reinforced by a conversation with Reeves at a chance meeting at a train station, where the bleak future for the contracted-in poor I had painted above appeared news to her.
My suspicions were further raised when LBC shock jock Nick Ferrari, who, at last year’s Labour Party conference, put Reeves on the spot on air, asking her how much weekly state pension is. For me Reeves’ reply that basic state pension is `just under £100 a week’ was more than the equivalent of an out of touch politician not knowing the price of a pint of milk. Am I wrong in thinking anyone who had read in any detail the state pension reform consultation documents would have known the figure was over £100?
Politicians cannot be expected to understand everything, and have researchers and policy wonks in the background to do all the hard yards. But you would at the very least expect the secretary of state for work and pensions to understand the reforms to something as fundamental and crucial as the single the state pension – the clue is in the job title.
The transition to the single tier pension policy is riddled with unfairness. Who knows, maybe the new team, under Corbyn, will take a different tack. Pension professionals tasked with explaining reduced pension to millions of workers should hope it achieves some renegotiation of the transitionary arrangements.