Freedom is a double-edged sword. (Marlene Rybka/Flickr)
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Budget 2015: Government pension changes risk destroying the whole system

Far from giving pensioners more freedom, changes to the pension scheme risk leaving the elderly with nothing.

Today, under the guise of grey-vote populism, George Osborne led an onslaught against the future prosperity of British pensioners. In the Budget he will extend last year’s pension ‘freedoms’ from new retirees to all those who have a pension in payment. He will offer millions of people who today have a secure, guaranteed income for life the chance to spin the wheel of fate. Many will take up his offer, even though huge numbers will end up worse off. And the whole pension system could end up permanently scuttled: the future of all our retirements is at stake.

The chancellor’s retort is that he is creating choice and freedom. He says his critics are patronising when they suggest that people can’t be trusted with their own money. But no one is suggesting that large numbers will be wilfully irresponsible. Financial decision making is a tough business, and constraints and defaults often serve us well.  

Indeed this is the government’s view when it comes to building up a pension. The same should apply to how we spend it. Without some clear structure to help us spread money over our retirements we may spend too much too early - but equally many will end up hoarding more than they need to.

And Osborne ignores the most important point about pensions – that they protect us from risk. None of us know the day we will die, so we can try to be responsible and still end up making the wrong decision. Pensions protects us from this fate by pooling risks.

As individuals, we share with each other the financial misfortune of leading a long and happy life. People who die earlier than expected end up paying for those who live late, preventing late old age being blighted by poverty.

And collectively, we place a bet with the insurance industry. Insurers provide guaranteed incomes based on how long they think each generation will live: if their calculations turn out to be too pessimistic, as has been the case in the past, it is they who are out of pocket, not pensioners themselves.

All that will go if Osborne succeeds in turning pension pots into giant ISAs. They will just be personal savings accounts, with none of the pooled benefits of a pension. In the name of freedom, it will mark another example of the individualisation of risks we cannot mitigate - of decisions too uncertain to make alone. This is not the march of progress: our lives do not need to be so complex and insecure.

Supporters of the policy suggest that the risk averse will still be able to buy a pension annuity. But the evidence from other jurisdictions suggests this will not happen much in practice, even though a guaranteed income is likely to be in most people’s interests. It is not responsible choice to reject insurance against longevity, it is market failure.

Osborne is also doing a disservice to future generations of pensioners. In his decision to turn guaranteed lifetime incomes into savings accounts he has undermined what makes pensions pensions. Over time this will place the consensus on pension saving at grave risk. If pensions are just ISAs people will soon as why should employers contribute? why should the taxpayer? why should low paid workers be automatically enrolled to the detriment of their take-home pay? This slippery slope will lead over time to less pensions saving and lower retirement living standards.

Politicians must show that a different way is possible. It may not make sense for everyone to buy a compulsory annuity in their early or mid-60s, when people often have many years left to carry on saving and enjoying the possible benefits of rising capital markets. Investment-style pension products make sense in this context. 

But almost everyone should have a guaranteed income in late old age, from 75 or 80 onwards. Otherwise it’s not a pension. Changes are needed, but they will take time to get right. So, for now, the new government should pause the Osborne reforms because they will end up doing great harm to the people they are intended to serve. Then an impartial, evidence-driven pensions’ commission is needed, to save our pension system from politicians on the hunt for votes.

Andrew Harrop is general secretary of the Fabian Society.

Photo: Getty
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Unite stewards urge members to back Owen Smith

In a letter to Unite members, the officials have called for a vote for the longshot candidate.

29 Unite officials have broken ranks and thrown their weight behind Owen Smith’s longshot bid for the Labour leadership in an open letter to their members.

The officials serve as stewards, conveners and negotiators in Britain’s aerospace and shipbuilding industries, and are believed in part to be driven by Jeremy Corbyn’s longstanding opposition to the nuclear deterrent and defence spending more generally.

In the letter to Unite members, who are believed to have been signed up in large numbers to vote in the Labour leadership race, the stewards highlight Smith’s support for extra funding in the NHS and his vision for an industrial strategy.

Corbyn was endorsed by Unite, Labour's largest affliated union and the largest trades union in the country, following votes by Unite's ruling executive committee and policy conference. 

Although few expect the intervention to have a decisive role in the Labour leadership, regarded as a formality for Corbyn, the opposition of Unite workers in these industries may prove significant in Len McCluskey’s bid to be re-elected as general secretary of Unite.

 

The full letter is below:

Britain needs a Labour Government to defend jobs, industry and skills and to promote strong trade unions. As convenors and shop stewards in the manufacturing, defence, aerospace and energy sectors we believe that Owen Smith is the best candidate to lead the Labour Party in opposition and in government.

Owen has made clear his support for the industries we work in. He has spelt out his vision for an industrial strategy which supports great British businesses: investing in infrastructure, research and development, skills and training. He has set out ways to back British industry with new procurement rules to protect jobs and contracts from being outsourced to the lowest bidder. He has demanded a seat at the table during the Brexit negotiations to defend trade union and workers’ rights. Defending manufacturing jobs threatened by Brexit must be at the forefront of the negotiations. He has called for the final deal to be put to the British people via a second referendum or at a general election.

But Owen has also talked about the issues which affect our families and our communities. Investing £60 billion extra over 5 years in the NHS funded through new taxes on the wealthiest. Building 300,000 new homes a year over 5 years, half of which should be social housing. Investing in Sure Start schemes by scrapping the charitable status of private schools. That’s why we are backing Owen.

The Labour Party is at a crossroads. We cannot ignore reality – we need to be radical but we also need to be credible – capable of winning the support of the British people. We need an effective Opposition and we need a Labour Government to put policies into practice that will defend our members’ and their families’ interests. That’s why we are backing Owen.

Steve Hibbert, Convenor Rolls Royce, Derby
Howard Turner, Senior Steward, Walter Frank & Sons Limited
Danny Coleman, Branch Secretary, GE Aviation, Wales
Karl Daly, Deputy Convenor, Rolls Royce, Derby
Nigel Stott, Convenor, BASSA, British Airways
John Brough, Works Convenor, Rolls Royce, Barnoldswick
John Bennett, Site Convenor, Babcock Marine, Devonport, Plymouth
Kevin Langford, Mechanical Convenor, Babcock, Devonport, Plymouth
John McAllister, Convenor, Vector Aerospace Helicopter Services
Garry Andrews, Works Convenor, Rolls Royce, Sunderland
Steve Froggatt, Deputy Convenor, Rolls Royce, Derby
Jim McGivern, Convenor, Rolls Royce, Derby
Alan Bird, Chairman & Senior Rep, Rolls Royce, Derby
Raymond Duguid, Convenor, Babcock, Rosyth
Steve Duke, Senior Staff Rep, Rolls Royce, Barnoldswick
Paul Welsh, Works Convenor, Brush Electrical Machines, Loughborough
Bob Holmes, Manual Convenor, BAE Systems, Warton, Lancs
Simon Hemmings, Staff Convenor, Rolls Royce, Derby
Mick Forbes, Works Convenor, GKN, Birmingham
Ian Bestwick, Chief Negotiator, Rolls Royce Submarines, Derby
Mark Barron, Senior Staff Rep, Pallion, Sunderland
Ian Hodgkison, Chief Negotiator, PCO, Rolls Royce
Joe O’Gorman, Convenor, BAE Systems, Maritime Services, Portsmouth
Azza Samms, Manual Workers Convenor, BAE Systems Submarines, Barrow
Dave Thompson, Staff Convenor, BAE Systems Submarines, Barrow
Tim Griffiths, Convenor, BAE Systems Submarines, Barrow
Paul Blake, Convenor, Princess Yachts, Plymouth
Steve Jones, Convenor, Rolls Royce, Bristol
Colin Gosling, Senior Rep, Siemens Traffic Solutions, Poole

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.