The case for an Independent Pensions Commission
This is my contribution to an NAPF publication on the need for an Independent Pensions Commission. I argue that this is not “taking the politics out of pensions” – an absurdly impossible task – but rather a chance to bring social partnership to another field of policy making.
“We live in an age of anti-politics. Politicians are held in low esteem and support for the two big parties is at its lowest ever. Much political journalism is hard to tell apart from the sports pages – it is all about tactics, team formation, who is up and who is down. Political interviews are too often gaffe hunts as a good slip can drive the 24 news agenda for hours afterwards.
It is not surprising then that we often hear calls to take the politics out of something as if this is self-evidently a good thing. And when policies are often announced to get a quick headline, but with no reference to evidence or without even an explanation of what problem something is meant to address, there is some appeal in asking experts to draw up technical solutions for society’s problems.
But while the way that politics is done in the UK today may be often dysfunctional, there are still fundamental choices that societies need to make that should be resolved through the democratic process. ‘Technical’ solutions rarely challenge the current power relations of a society. How much inequality or poverty, we should tolerate is not just a question for experts, but one that society as a whole must answer, and certainly not one that should be left only to those who benefit from current arrangements.
Every year all round the world people campaign against authoritarian regimes and for the right to vote. They are not on the whole marching or agitating to take the politics out of anything, but to subject power and authority to democratic accountability.
In arguing for an independent commission to look at pensions, we therefore need to be careful about the language we use. The whole history of pensions is wrapped up in politics. The first pensions were set up by the state in what is now Germany to provide support for the widows of church ministers, and the history of state pensions from Lloyd George onwards in the UK will be familiar.
Instead of taking politics out of pensions, the case for an Independent Retirement Savings Commission is that it can make the politics of pensions work better. It should not be the decision making body, but should make recommendations that elected politicians then judge. But by using its independence to assess evidence, its expertise to produce technically workable solutions and its political smarts to produce policies that have a good chance of lasting by achieving wide consensus it can improve the politics of pension decision making.
This is not a case that we need to make in the abstract, for we already have a great model in the original Pensions Commission. The introduction of auto-enrolment is one of the great social policy changes of recent years, yet ended up being almost entirely uncontroversial. To see why, it is worth looking at how the Pensions Commission came into being and how it worked.
Its birth was not uncontroversial. It took a lot of campaigning by unions, consumer groups and many others to establish that there was a problem and that individual responsibility and market provision was failing. One of the biggest behind the scenes rows of the new Labour years was over its remit, with the Treasury fighting hard to exclude consideration of state provision.
It started by assembling the evidence. Never before had so many statistics and so much research on UK pensions been gathered as in its initial reports. The problem was established. The question became not whether we needed a new approach, but what it should be.
Not were its eventual recommendations simply technical. Auto-enrolment was something of a leap in the dark as it had never been tried across a society before. You could make a strong case for either the state and taxpayer to play a bigger role, as in many other advanced economies, or go to saver compulsion, as in Australia. But neither were likely to pass the political sustainability test. Instead, they recommended a system that gave everyone in the debate some of what they wanted, but nobody everything.
In particular those on the right suspicious of the state got a two tier pensions system with much retirement income based on investment, and with people retaining the right to –opt-out. Those on the left who wanted better income in retirement for the low and average paid got employer compulsion for the first time. Those concerned about affordability got an increase in the state pension age. Those worried about market failure got a low charge champion in what became NEST. And perhaps almost everyone could welcome a better deal for women.
It also helped that its membership, while undeniably expert, also came from different interest groups. Its chair was from the CBI, one member from a trade union and another an academic. If they could agree, then that suggested others could too.
Another analogous body is the Low Pay Commission. It makes recommendations rather than takes decisions. It has members drawn from employers, unions and independent experts. It engages with stakeholders, hears evidence and sets outs the reasoning behind its recommendations. But it is the government that decides, and only if very occasionally, does not accept Commission recommendations, as the recent decision to boost apprentice rates shows.
So how could this approach benefit pensions in future? The obvious advantage is that evidence based policy making and consultation prevents the headline capturing initiative that turns out not to have been properly thought through. I certainly agree with both the major parties that the current system of pension taxation is too skewed towards better off taxpayers, but there is a case for a thorough review of the whole tax relief system and review of evidence of incentives and savings patterns. Rather than taking perks from the better off to fund other policy areas, we should have had a though discussion of whether we can refocus the tax system to help low to middle earners do better in retirement.
Similarly, increases in the state pension age have been budget day announcements aimed at the bond market with no serious consideration of longevity trends or engagement with growing inequality in how long people can expect to live. We might also have ended up with a consensual reform agenda for decumulation rather than finding that the so-called freedom and choice agenda had broken up the valuable consensus that developed under Labour and continued under the coalition around the basic architecture of how pensions in the UK will work.
A lot of the pensions reform agenda in the UK in recent years has used the insights of behavioural economics. We have backed policies that have nudged people in ways that overcome our natural difficulties in thinking about the future.
It is time to do the same with the politics of pensions. There will always be legitimate debates about how we share paying for pensions, the role of the state and minimum standards in retirement. These are rightly high ideological politics. Buit what we can do is contruct a framework that nudges politicians to think long term, consider the evidence and justify their conclusions. And that can only be for the better.