PENSIONSANDSAVINGS.COM

• At last, recognition of injustice for lowest earners, mainly women, forced to pay 25% extra for their pensions in auto-enrolment.
  
• Deal with NHS pensions crisis in 30 days – which hopefully will herald radical overhaul of annual and lifetime allowance problems for all.
  
• Revival of Pensions Bill quickly for Pensions Dashboard and better Regulator powers.
  
• Encourage pension funds to increase long-term investment in scientific development.
  
• But more to do on State Pension problems.
  

After this weekend’s bombshell announcement by Labour of its £58 billion proposal to ‘compensate’ all 1950s women (including people like myself) with thousands of pounds, other pension issues have failed to capture much attention. However, despite the lack of eye-catching headlines, the Conservatives did unveil a few welcome proposals to remedy some of the major problems in our pension system. Of course, I am disappointed that there is no sign of early action on social care reform – which is the biggest social policy failure of our lifetime – but a few of the significant gaps in the pension system are being recognised at last. Here are some of the highlights.

LOW EARNERS’ PENSIONS IN NET PAY SCHEMES: The Manifesto announces a comprehensive review to fix the Net Pay anomaly. It cannot come soon enough. This is not just an ‘anomaly’, it is a significant injustice. More than a million workers (mostly women), who earn less than £12,500 a year with any employer, are currently being charged an extra 25% for their auto-enrolment pension. These workers do not realise they are paying so much more than they really need to and could have more take-home pay if their employer used an alternative pension scheme.

This situation has been shamefully left unaddressed, and I have been working with a dedicated industry group that is trying to highlight the problems and has proposed remedies to ensure workers enrolled into schemes operating on a Net Pay basis pay the same contributions as those using Relief at Source administration. The longer this scandal goes on, the more low earners lose, and in many cases neither they, nor their employer, are aware of the problems. A class action at some time in the future could undermine confidence in workplace pensions. Nearly all the new MasterTrusts are allowing low earners to join, even though they have no way of recouping the extra money they must contribute. It is disappointing that other political parties have not addressed this, but I am delighted to see a commitment from the Conservatives. It must now be turned into action urgently!

NHS PENSION PROBLEMS AND TAX ALLOWANCES: The Manifesto commits to immediately addressing the NHS crisis, in which senior medical staff are being penalised for working extra shifts because their ‘deemed’ pension contributions are considered to exceed a moving annual allowance pension target. The ‘Tapered Annual Allowance’ is supposed to control the cost of higher earners’ pensions tax relief. However, the rules invented for its implementation are extraordinarily complex, convoluted and counter-productive. Senior medical staff have unwittingly strayed over an unknowable cliff-edge, due to pension contributions that they have not actually paid in – but are deemed by complicated calculations to have accrued. They then face tens of thousands of pounds in unexpected tax charges which can exceed the value of their earnings for the extra work. The amount they can pay into a pension is dependent on the income they earn in the current tax year, which they often do not know in advance. The NHS has let its staff down. The pension scheme did not explain or warn members how much their deemed contributions would be. Nor were staff warned of the consequences of pension tax rule changes, that were headlined as relating to people earning over £150,000 a year, but actually affect people whose NHS salaries are well below £100,000 a year – including nurses, dentists, consultants and other staff.

The NHS employs 1.4million people, the numbers affected by this pension penalty are relatively small, but the impact on the NHS has been disastrous. Many senior staff are leaving or cannot take on extra shifts, resulting in patients without care and hospitals or GPs unable to meet demand. It is, therefore, right that the Conservatives are proposing to implement a short-term remedy within 30 days, reassuring staff that the NHS pension scheme, underpinned by the Treasury, will pay tax bills that arise for this year. This will cost far less than employing temporary or locum staff and alleviate disruption to NHS services when the most experienced professionals must be replaced. It is vital, however, that the next Government introduces a much wider reform of the Tapered Annual Allowance – and indeed the Lifetime Allowance. The continually tightened restrictions are damaging productivity and driving people out of pension schemes. These impacts need to be reversed, to ensure people keep contributing over the long-term, and not incentivised to early retirement, as is happening at the moment. It may be that different rules are needed for Defined Benefit and Defined Contribution pensions.

PENSIONS BILL REVIVED – Dashboard, CDC, Regulator Powers: The Manifesto commits to bringing back the recent Pensions Bill which fell as a result of the early General Election. This legislation would pave the way for Pensions Dashboards, give the Pensions Regulator more powers to demand information from schemes and prevent rogue employers from short-changing their pension funds, and permits Collective Defined Contribution schemes, which Royal Mail and its staff have been calling for. The Bill had cross-party support and, although it may need stronger measures to ensure that pension providers clean up their data before submitting it to the Pensions Dashboard, it is important that it comes before the new Parliament as soon as possible.

LONG-TERM INVESTMENT – Pension Funds to support innovation: The Conservatives aim to ‘unlock long-term capital in pension funds to invest in and commercialise our scientific discoveries’. This is a sensible proposal as pension funds are an ideal source of long-term funding for both new ventures and large infrastructure projects. Together with the massive expansion of infrastructure spending that is proposed, there should be room for more pension funds to be encouraged to participate in long-term projects that are expected to generate significant returns.

STATE PENSION – good news and bad news: All three Party Manifestos promise to keep the Pensions triple lock. I must say, I still feel this policy is badly misunderstood. The triple lock protects the full new state Pension (£175.20 a week from April 2020), which is only available to the youngest pensioners, anyone reaching pension age since 2016. The oldest pensioners only have the Basic State Pension protected by the triple lock (£134.20 a week), whereas the rest of their State Pension (SERPS, S2P, Graduated Pension) is only linked to CPI. And the poorest pensioners, mostly women, who rely on Pension Credit (around £174 a week from 2020), have no triple lock at all, their benefit is protected by earnings only. The cost of the triple lock is significant, the money spent on uprating the full new State Pension would be better spent on protecting the poorest pensioners in Pension Credit. By the end of the next Parliament, the triple lock with increase the new State Pension by at least £1000 and it will pay over £10,000 a year to new pensioners. But no such protection is being guaranteed for the poorest pensioners.

There is no proposal to help the WASPI women either, which is disappointing. I would like to see the Government help those women facing hardship. The commitment by Labour to pay all women born in the 1950s huge sums to replace their pensions back to age 60 is not something that I have ever supported. Clearly, many women are facing hardship, but someone like myself would be in line to get over £24,000 of taxpayers’ money – a staggering cost of £58 billion – even though I knew about the change. I believe the Parliamentary Ombudsman may well find that the post-1997 Labour Government and its Ministers and Department responsible for State Pensions was guilty of maladministration and misled many women into a false sense of security about their pensions. But the calls on taxpayer funding and staggeringly large sums of money that are being promised, in the context of a country that has not found money for social care and has enormous debts, make the staggering promises to all 1950s women seem irresponsible. Other parties would work with the women’s groups to try to find a way forward and I could support that.

I have always been distressed that the Conservatives did not appreciate the problems that increasing women’s state pension age created. Not all women can work longer, many are caring for others and face discrimination in the labour market. Indeed, the same applies to men. I also do not support Labour’s idea of keeping state pension age fixed at 66. A much fairer system would be to have a flexible band of state pension ages, recognising health and years contributed to National Insurance, which could allow earlier access for some people, rather than continually raising the minimum age for everyone, regardless of their circumstances. Perhaps the next Government will consider this.