With the election campaign in full swing, David Adams assesses what the main parties have in store for pensions

Got election fever? Or does the prospect of another change of direction in pensions reform and yet more political meddling leave you slapping your forehead in frustration?

We already know about Labour's plans: introducing the National Employment Savings Trust (NEST) and auto-enrolment in 2011/2012; raising the retirement age to 66 in 2026, then up to 68 over the following 20 years. A re-elected Labour government will also restore the link between the state pension and earnings by 2012 or by the end of the next Parliament.

The Conservatives would review the arrangements for NEST and favour bringing forward auto-enrolment for company schemes. They would also raise the retirement age, but faster, up to 66 in 2016 for men and 2020 for women. They would also restore the link between the state pension and average earnings by 2012 or by the end of the next Parliament. They would like to scrap what is effectively compulsory annuitisation at 75 and remove means testing as part of a shift away from traditional pensions towards a more flexible "lifetime savings" model. The Tories' proposed Office for Budget Responsibility would carry out a comprehensive audit of all off-balance sheet government liabilities, including public sector pensions; and they would put an annual cap of £50,000 on public sector pension payouts.

The Liberal Democrats believe that reforming the state pension system is the most important priority and say the decision taken by the Conservatives to sever the link with earnings in 1980 was a "betrayal" that Labour has failed to reverse. The party claims the government proposal to increase pensions in line with earnings from 2012 means a cut in real terms, as prices are expected to rise more quickly than earnings in 2011/2012. It would tie pensions to increases in average earnings, prices or 2.5 per cent. The Liberal Democrats would also favour scrapping compulsory annuitisation and would establish a new independent commission to examine the long term future of public sector pensions.

Impressed?
But while all three parties are attempting to address the issues, what does the pensions industry think of their efforts?

"They're giving [pensions] more attention than in the past, which is good, but I'm not convinced anyone's saying anything particularly exciting," says Paul Hamilton, partner at actuarial consultancy Barnett Waddingham.

But some believe there are identifiable themes across all three parties' policies which could yet lead to significant change. Iain Anderson, director and chief corporate counsel at Cicero Consulting, believes a move away from conventional pensions structures is one such shared theme.

He points to the government altering the rate of tax relief for those earning £150,000 and over, where gross income is taken to include all pension contributions: with the rate set at 50 per cent, to be reduced gradually to 20 per cent as gross income rises to £180,000 and over (above an income floor of £130,000) - a move described by John Lawson, head of pensions policy at Standard Life, as having the potential to become one of the most damaging acts against pensions in a generation.

"We've had the Lib Dems saying 'We should scrap high rate relief' and we've had the Tories talking about creating a single rate of relief, bringing both basic rate taxpayers and higher rate policies to the same level [about 30 per cent]," says Anderson. "In the budget we also saw a further boost to the ISA regime. It just feels that there's a move away from pensions savings towards more flexible vehicles."

There is also cross-industry and (qualified) cross-party support for the underlying aims of NEST and auto-enrolment. But concerns about a 'levelling down' effect on wider market provision and also about the potential consequences for people already trying to save for retirement, remain.

"Generally speaking we are supportive of government policy - the one area that is very frustrating is that they do not seem concerned about means-testing," says John Jory, director of B&CE Insurance.

"People who auto-enrol will end up certainly no better off and maybe worse off, because their small pension saving may disqualify them from means-tested benefits they might otherwise receive that would be greater than their pension savings. What's the motivation for them to do more to save for their retirement? I cannot understand how the Labour Party, the party of low to moderate earners, can justify not taking action to remedy that. The Conservatives have said it's something that they wish to address, but time's running out."

Indeed, there seems to be a degree of scepticism among industry experts that the Conservative promise to review NEST would actually make much difference.
"The Tories have moved from a position where NEST looked in doubt under a Tory administration to a stage where now they are talking about a pretty quick review of the NEST process to see if they can extract better value for the taxpayer and savers," says Iain Anderson.

The proposal to scrap annuitisation looks more like clear water between the Government and the opposition parties. "If Cameron wins on his own it will go, if he is helped by the Lib Dems it will bite the dust too," notes Anderson. But would even that represent an expression of ideology rather than a significant practical change?

"The Tories understand that peoples' aversion to annuitisation stems not from a perception that annuities are poor value, but because they don't want to avoid passing on unused pension assets to children," points out Tom McPhail, head of pensions research at Hargreaves Lansdown. "That's a message that will resound well with voters and savers. But the reality is that most people will still buy an annuity."

While the chances of the Liberal Democrats actually winning the election are slim to non-existent, the party could exert pressure on policy-making in coalition with a minority Labour or Conservative government. Some of the ideas that party might seek to promote have also attracted positive reactions in the pensions industry, in particular the aim to reform the state pension. There is also, unsurprisingly, widespread support for Liberal Democrat suggestions that pensions must be considered in a more long-term way.

On the fringes
But there is also still enough general dissatisfaction with the ideas put forward by mainstream politicians to have inspired the launch of a new party, albeit one with limited ambitions. The U Party (the U stands for 'universal') was founded by former NAPF chairman Robin Ellison, now head of strategic development for pensions at law firm Pinsent Masons, as "a pragmatic party, with little interest in criticising others and little ideology" (see Feb issue of Pensions Age for a profile piece on Ellison).

Key manifesto pledges include a commitment to increase the state pension to (the contemporary equivalent of) £200 per week for everyone aged 70 and over; retirement age to rise to 75 over the next 50 years; and the removal or simplification of pensions regulation and private pensions tax rules. Ellison is standing as a parliamentary candidate in Hampstead and Kilburn and the party is hoping to put up candidates for election elsewhere.

"The difference, I hope, is that we have a holistic approach rather than a soundbite approach," says Ellison. "The other parties fiddle around and haven't got the attention span or the political capital to look more than six months ahead. The key is long-term strategy. The one person I was impressed with was Steve Webb of the Lib Dems, talking about reforming the state pension. I'm impressed with his lack of ideology and his innate practical common sense."

The U Party's plan is to provide a focus on pensions policy, says Ellison: "My guess is that over time the main political parties will feel pressure from the industry and consumers along the lines that the U Party is raising."

For the time being, perhaps we should just be thankful for the effort that is already going into policymaking in this area.

"There are positive aspects to all three of the parties' policies," says Tom McPhail. "You could mix them all together and create something that works." So while the parties scrap over this issue as much as over any other, the fact that they really do share some common ground in this area may yet work in the industry's favour. Things might not change so quickly and radically as some would like, but perhaps, given the circumstances surrounding this election, a hoary old phrase from a previous campaign might actually express the truth: maybe things can only get better.

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