Reforming the pension system to work for the many
Auto-enrolment has been a triumph but defined contribution schemes do not deliver a pension as we know it
Do you remember the Turner Commission? It was the kind of grand technocratic event that only those who pay fairly careful attention to Whitehall policy development will remember. Its enormously important outcome, however, has changed the lives of ten million people—or will do so, once they start receiving their pension.
Auto-enrolment has brought a population the size of the West Midlands, Greater Manchester, Leeds, Bradford, Merseyside and South Yorkshire combined into workplace saving for the first time. Most of them have gone into nationalised or mutual institutions. It was a great achievement of the last Labour government, albeit a not terribly sexy one.
During this period, the rate at which employers have replaced their defined benefit schemes with defined contribution schemes has rapidly increased.
Defined contribution schemes do not deliver a pension as we know it. They are in fact an investment fund where all the risks, costs and charges are borne by the member. Often, when the pension holder retires, their DC scheme will not be able to provide them with a reliable income.
Faced with this state of affairs, Labour’s goal is clear. We must create the conditions for workers, trade unions and employers to choose the type of pension scheme they desire, allowing a range of schemes that workers can be auto enrolled into. Labour wants to make sure that workers actually get a reliable pension in retirement.
Pension and investment governance lacks transparency and is riddled with conflicts of interest. All too often, it looks like the later years of scheme members are just an afterthought. The government permits opaque costs, charges and fees that can erode the investment returns of pension holders.
Labour has a clear plan for tackling these inefficiencies. The next Labour government will enable funds to merge or pool assets on an industry basis. Accordingly, we will ensure that asset managers supply information about all costs and charges in the investment chain.
These costs and charges must be measured and analysed for efficiency, so that people who are choosing their pension scheme can properly judge a scheme’s investment strategy. We will require trustees to consider consolidating the scheme they oversee with other schemes, so that members can be more confident of a decent income in old age.
Pension scheme members in this country are the beneficial owners of over £3trn of assets cumulatively, but they have little oversight over the decisions about their money that are made by trustee boards, asset managers and consultants.
The next Labour government will put the scheme member and the employer who has sponsored their scheme membership at the heart of the governance process. We will increase the number of trustees on boards, master trusts and IGCs who are nominated by members themselves, and we will improve training, development and the provision of time off for trustee duties.
Pensions are the less glamorous end of a pretty unglamorous side of policy. But, as we all know, they determine our quality of life for what we all hope will be many years of retirement. Labour will construct a pension system that actually concentrates on the interests of workers.
More than ever, as our population grows older, we need pensions that deliver for the many, not the few.
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