The downgrading of the pensions minister’s position to under-secretary of state has been taken as a sign that the government isn’t interested in pensions.
That’s not quite true. A more accurate interpretation would be that the government has lost interest in making the pensions system work better for savers as it focuses on making it work for the Treasury.
As a former shadow work and pensions minister, May understands the scale of the brief and that the minister has to know what they’re doing. But the departure of Ros Altmann as minister of state for pensions wasn’t a surprise. Nor was the decision to give her replacement, Richard Harrington, the more junior role.
The message was clear: not that pensions don’t matter, but that they are now in the hands of the Treasury. Altmann, a tireless campaigner and communicator but with no experience of politics, was appointed last year for the same reason – she wasn’t considered a threat to the Treasury power-grab.
The absence of a pensions minister removes another obstacle to the Treasury’s aim of replacing the existing system of pensions taxation with one built along the lines of Isas. While the current system of tax relief on pensions costs the government upfront, the tax costs on an Isa-style system come further down the line when the money is being withdrawn.
That’s why the March Budget included the proposed lifetime Isa, widely considered a “Trojan horse” that will eventually kill off the pensions system as we know it. Even if you think that would be a good thing – and the idea certainly has its benefits – it should be borne in mind that the government is only interested in it for the short-term tax take.
A better option would be a flat rate of tax relief on pensions at around 30 per cent, replacing the highly regressive higher rate of relief paid to the wealthiest savers and improving the savings incentive for those on more modest incomes.
That may well happen, but with Altmann confirming in the wake of her departure that the Treasury was keen on implementing an Isa-style tax relief, we might be set for more radical changes.
The pensions minister also heads the department responsible for the most successful pensions policy of recent times. Automatic enrolment into workplace pensions was a Labour government initiative implemented by the coalition, and it’s largely responsible for the sharp increase in pension contribution rates over the past five years.
The downgrading of the pensions office confirms that the current government is less interested, however. Vital reform, including higher minimum contributions and extending auto-enrolment to the self-employed, is now less likely. So too is constructive action on company pension deficits, pensions equality, the acceleration of the state pension age and the many other pressing issues linked to our ageing population.
Downgrading the position of the minister in charge of the biggest area of government spending is, as former pensions minister Steve Webb said, “simply astounding”. Short-term tax demands took priority over consumer protection even before the EU referendum. In May’s Brexit government, the interests of savers and pensioners will be even more peripheral.