Jeff Salway: As the pensions time bomb ticks, politicians put fingers in their ears

Published on Friday 30 April 2010 19:56

GILLIAN Duffy unwittingly made sure of belated front-page presence for pensions this week, but the surreal intervention of the Rochdale widow was the closest this election campaign has come to addressing the demographic time bomb.

In her conversation with Prime Minister Gordon Brown, before "bigot-gate" erupted, Duffy, 66, complained about the impact of indirect taxes on those dependent on the state pension for their income.

In doing so, she briefly drew attention to a subject that politicians have spent the past month avoiding, presumably in tacit recognition of their utter lack of clues as to how they should tackle the building pensions crisis.

Several bodies have raised concerns over the past month regarding the paucity of credible joined-up proposals outlining how the parties would tackle one of the biggest problems they will face in office.

They have each produced a range of manifesto pledges relating to state, private and public-sector pensions, but none of it amounts to more than a piecemeal approach to policy-making.

For example, as the Association of Consulting Actuaries (ACA) pointed out this week, the main political parties have proposed separate commissions or reviews to look at issues from public-sector pensions and MPs' pensions to elderly care, but without any sense of cohesion.

The ACA dismissed the main parties' policies for pensions as "threadbare at best", piecemeal and positively damaging.

One curious omission from the various manifestos is the task of helping people put their pension pot to best use when they retire – never more important than now with pension funds yet to recover all their bear market losses and annuity rates slipping inexorably downward.

Hargreaves Lansdown has estimated that about 80,000 pensioners retiring this year would on average get an extra 169 a year in retirement if shopping around for an annuity (using the open market option) was made the default choice when retiring. For some reason it still isn't, and not one of the main parties has put forward this simple proposal, one that would cost the government nothing, but would make a real difference to the lives of millions of pensioners.

The only crucial measure they agree on is restoring the link between the basic state pension and earnings, but beyond that there is little real focus on the issue of public-sector pensions and boosting private-sector and individual pension saving.

The pensions industry has been particularly vocal about the impact of the government's restrictions on higher-rate tax relief on contributions, coming into force next year, on incentives for pension saving.

With a hung parliament looking more probable every day, the industry may have soon have cause to worry about the Lib Dem proposal to abolish higher-rate tax relief altogether.

There is a (very slim) chance that a hung parliament is a positive outcome as far as pensions are concerned. For as Andy Cumming of Scott Moncrieff believes: "Pensions and old-age provision are too serious a matter for society to be handled by transient government ministers, who do not really understand the consequences of their often polarised stance."

Cumming rightly calls for a cross-party approach to pensions, given the demographic time bomb facing the UK. Is it navely optimistic to hope for a hung parliament that ushers in a more consensual political approach to pensions?

No doubt it is, but the failure of almost every pensions policy of the past 30 years is proof that pensions must be lifted beyond party politics before it is too late.

&#149 The Scotsman Personal Finance Editor, Jeff Salway, was this week named Regional Journalist of the Year at the 2010 Headlinemoney] Personal Finance Media awards for the second year in a row