Shadow work and pensions secretary Rachel Reeves during an appearance on the BBC's Sunday Politics.
Show Hide image

Labour outflanks the Tories on immigrant benefits

Rachel Reeves suggests migrants should be denied welfare until they have contributed through the tax system. 

When David Cameron announced earlier this week that EU migrants would only be entitled to claim benefits for three months (after a waiting period of three months), Labour's main criticism was that it was too little, too late. Yvette Cooper said: "It's almost a year and a half since Labour called for benefit restrictions on new migrants. In that time we've had reannouncement after reannouncement from the Tories but little in the way of firm action."

Following this logic, Labour is now pushing for Cameron to go further. In her interview with the Sun on Sunday, Rachel Reeves suggests that migrants should be denied benefits until they have contributed through the tax system. 

"It isn’t right that somebody who has worked hard all their lives and has contributed to the system is entitled to only the same as somebody who has just come to this country, so we need to look at that," she says. "It shouldn’t be that you can draw on the system without having contributed."

As things stand, this change would likely fall foul of EU rules requiring parity of treatment between migrants and domestic workers. But Reeves suggests Labour would either "work with partners in Europe to reform the system", or "[change] our system so it is better based on contributions". The latter option would mean denying British citizens benefits unless they have contributed. 

Reeves's comments add to what is a large list of proposed EU reforms from Labour. Ed Balls told yesterday's Telegraph: "We have lots of rules that fetter movement. We think you should toughen up those rules. You shouldn’t be free to work in Britain and send back tax credits. You shouldn’t be free to come to Britain and be unemployed. You shouldn’t be free to come to Britain as soon as your country joins the EU" (he spoke not of "fair movement" but of "free movement"). 

The criticism from the Tories will be that none of this can be achieved without the threat of withdrawal provided by an in/out referendum (one that Boris Johnson today advises David Cameron to make explicit). But given Cameron's lack of success to date, most notably over Jean Claude-Juncker's appointment as EU commission president, Labour can reasonably argue that blackmail diplomacy won't work. 

George Eaton is political editor of the New Statesman.

Show Hide image

Stability is essential to solve the pension problem

The new chancellor must ensure we have a period of stability for pension policymaking in order for everyone to acclimatise to a new era of personal responsibility in retirement, says 

There was a time when retirement seemed to take care of itself. It was normal to work, retire and then receive the state pension plus a company final salary pension, often a fairly generous figure, which also paid out to a spouse or partner on death.

That normality simply doesn’t exist for most people in 2016. There is much less certainty on what retirement looks like. The genesis of these experiences also starts much earlier. As final salary schemes fall out of favour, the UK is reaching a tipping point where savings in ‘defined contribution’ pension schemes become the most prevalent form of traditional retirement saving.

Saving for a ‘pension’ can mean a multitude of different things and the way your savings are organised can make a big difference to whether or not you are able to do what you planned in your later life – and also how your money is treated once you die.

George Osborne established a place for himself in the canon of personal savings policy through the introduction of ‘freedom and choice’ in pensions in 2015. This changed the rules dramatically, and gave pension income a level of public interest it had never seen before. Effectively the policymakers changed the rules, left the ring and took the ropes with them as we entered a new era of personal responsibility in retirement.

But what difference has that made? Have people changed their plans as a result, and what does 'normal' for retirement income look like now?

Old Mutual Wealth has just released. with YouGov, its third detailed survey of how people in the UK are planning their income needs in retirement. What is becoming clear is that 'normal' looks nothing like it did before. People have adjusted and are operating according to a new normal.

In the new normal, people are reliant on multiple sources of income in retirement, including actively using their home, as more people anticipate downsizing to provide some income. 24 per cent of future retirees have said they would consider releasing value from their home in one way or another.

In the new normal, working beyond your state pension age is no longer seen as drudgery. With increasing longevity, the appeal of keeping busy with work has grown. Almost one-third of future retirees are expecting work to provide some of their income in retirement, with just under half suggesting one of the reasons for doing so would be to maintain social interaction.

The new normal means less binary decision-making. Each choice an individual makes along the way becomes critical, and the answers themselves are less obvious. How do you best invest your savings? Where is the best place for a rainy day fund? How do you want to take income in the future and what happens to your assets when you die?

 An abundance of choices to provide answers to the above questions is good, but too much choice can paralyse decision-making. The new normal requires a plan earlier in life.

All the while, policymakers have continued to give people plenty of things to think about. In the past 12 months alone, the previous chancellor deliberated over whether – and how – to cut pension tax relief for higher earners. The ‘pensions-ISA’ system was mooted as the culmination of a project to hand savers complete control over their retirement savings, while also providing a welcome boost to Treasury coffers in the short term.

During her time as pensions minister, Baroness Altmann voiced her support for the current system of taxing pension income, rather than contributions, indicating a split between the DWP and HM Treasury on the matter. Baroness Altmann’s replacement at the DWP is Richard Harrington. It remains to be seen how much influence he will have and on what side of the camp he sits regarding taxing pensions.

Meanwhile, Philip Hammond has entered the Treasury while our new Prime Minister calls for greater unity. Following a tumultuous time for pensions, a change in tone towards greater unity and cross-department collaboration would be very welcome.

In order for everyone to acclimatise properly to the new normal, the new chancellor should commit to a return to a longer-term, strategic approach to pensions policymaking, enabling all parties, from regulators and providers to customers, to make decisions with confidence that the landscape will not continue to shift as fundamentally as it has in recent times.

Steven Levin is CEO of investment platforms at Old Mutual Wealth.

To view all of Old Mutual Wealth’s retirement reports, visit: products-and-investments/ pensions/pensions2015/