Tories were first on earnings link

Later today the Government will confirm that it intends to raise the retirement age and restore the link between pensions and earnings.  This morning's Today programme noted that it was Mrs Thatcher who broke the link a quarter of a century ago.  Today did not remind its listeners, however, that the Tories had already made the policy shift nearly three years ago.

In his last major act as Tory leader, Iain Duncan Smith made the policy change in a bid to revive the savings culture and deliver social justice for pensioners.  Devised by David Willetts the commitment was savaged at the time by Labour as "a cruel deceit on pensioners" and as "unsustainable".  Despite an otherwise nightmare Tory conference the very popular restoration of the earnings link helped give the Tories a 6% lead in a YouGov poll and was due to be rolled out in a massive programme of regional events and mailshots.  Michael Howard had next to no enthusiasm for the policy and when he became leader he did not pursue that programme or ever seriously promote the £5bn commitment.

Philip Hammond MP, Shadow Work & Pensions Secretary, has attacked the failure of Labour's new pensions package to provide fairness for women.  Commenting on the fact that 'only' 30 years of National Insurance contributions are now required for a full basic state pension for women retiring from 2010, Mr Hammond told ePolitix: "It does not seem fair that a woman retiring on a April 1, 2010 will get a full state pension based on 30 years' contributions, but that a woman retiring on March 31 with the same contributions will be condemned to a lifetime on a partial pension."

Comments

[Graeme Archer]

In an era of institutionalised low inflation, whether the link is with earnings or prices is largely irrelevant, and I do hope we're not going to let Brown get any (pensions) credit (fnarr) for this. What matters is lifting the basic pension to a level where we can get the vast majority of pensioners off means testing (Brown's Grimmest, Most Awful legacy-to-be) and where it becomes worthwhile saving again. David Willetts has written in the past quite wonderfully about policies that could advance this goal.

[William]

Despite an otherwise nightmare Tory conference the very popular restoration of the earnings link helped give the Tories a 6% lead in a YouGov poll ?????????????

The 2002 Conference was the happiest occasion for all people who were actually there (like I was).

Only 18 months before the Conservatives had been 20% behind Labour. Now they were 6% ahead at 40%. The membership were delighted with the party's policies - at last. It seemed like a miracle had happened.

Media reporting gave a different story. You could not believe what you were hearing. It's as if they were reporting a conference somewhere else. These were, of course the opening shots in the IDS media assassination. That's when the nightmare began.

We are still not back to where we were under the 'quiet man', but at least Portillo's gone and Frances Maude won't be disloyal, while he fills the Party with I-clones. We've lost four years though, because of the operations of a small treacherous europhile clique.

Why look back, you might say? I wouldn't, but you misrepresent the past, so I correct.

[Editor]

I was working for Iain at the time, William, and I can assure you that it was a nightmare conference. Yes, the policies were good, but the party was under siege from the media and discontented MPs. It wasn't pretty then and it got a lot uglier still immediately thereafter.

It was 2003 btw, not 2002.

Anyway, this thread is about pensions...

[johnC]

'We've lost four years though, because of the operations of a small treacherous europhile clique.'

No - we've lost 16 years - ever since 1990.

[Sean Fear]

Graeme, I think this neatly illustrates how Labour's idea of "fairness" differs from ours (and I believe most peoples').

In their eyes, if X has less money than Y, it's fair that X be taxed to give more money to Y. Whereas we think if X has saved more money than Y in his lifetime, it's only fair that X is better off.

It's similar to the views that many people have about the welfare state. They would see the welfare state as a giant mutual insurance system - so that the more you've put in by way of taxation - the more you're entitled to when you need it. But welfare is now largely distributed on the basis of need - so that if your needs are greater (eg a refugee, or single parent) you go to the head of the queue.

[William]

This from EU serf on rightlinks.co.uk

Under the changes, people earning more than £18,000 a year will see a key element of their state pension provision - the State Second Pension - almost halved.

But there will be no reduction in their National Insurance contributions to reflect the sharp reduction in their weekly pension when they retire - leaving them paying thousands of pounds a year to the taxman for a benefit they will no longer receive.

As if to prove Sean's point.

[matt wright]

No suprise at the biased Today programme. Gordon Brown has no place at all to comment -we must not let up on his £5 Billion raid on pensions.

Matt

[James O'Shaughnessy]

Before it settles into folklore that somehow IDS was the Tory saviour who was cruelly deposed despite his raging popularity, can I correct the facts please?

The only polls in which the Tories were ahead were YouGov's. If you don't believe me look at www.ukpollingreport.co.uk under historical polls. When IDS took over Tories were polling 27% (MORI) or 29% (ICM). When he left they were polling 32% (MORI) or 33% (ICM). Excluding YouGov, the average poll deficit for the Tories was around 5% when IDS was deposed.

IDS may have many qualities but winning the General Election under him? Don't make me laugh. It's just a ridiculous and selective myth peddled by those miserabilists who can't stand the fact that Cameron is doing well according to ALL pollsters.

[William]

Sorry Editor. 2003. It's seemed like forever. Oh well the media and the Maudsters have had their way, and now we have Cameron. The elite never understood the IDS phenomenon...a politician who actually cared.

[William]

I have no objection to Cameron doing well, but I would advise anyone handling the IDS history to take it gently. He's been misrepresented too often, and it's time he was given respect for what he achieved.

As for the conference, I guess one man's meat is another man's poison. IDS will always be a hero to me...and millions of others. The Conservatives owe him a big debt. Without him winning against Portillo and Clarke, we would not have Cameron now. Look at it that way.

[William]

and nor would the pensions link to earnings be on the agenda in all probability.

[a-tracy]

Didn't the NMW cause the need for a earnings link to be restored? After all if the NMW pushed up the earnings of the lowest paid by 40% since 1998, but state pensions only increased by 30%, then that is the pace of change that didn't keep up.

The wage rises then pushed up costs which left the pensioner with less money in their pocket.

[Richard]

"Excluding YouGov, the average poll deficit for the Tories was around 5% when IDS was deposed."

Well, Yougov polls have a track record of going the most accurate. Although to be fair I couldn't see IDS winning either.

This is a good policy in the short-term, although we should perhaps take the radical move of trying to shrink the state by giving the private sector more incentive to get involved. In the long-term the state pension ought to be for those who are on very low incomes and can't afford a private pension. Sadly Goron Brown's raids may have set this back a decade or so.

"But welfare is now largely distributed on the basis of need - so that if your needs are greater (eg a refugee, or single parent) you go to the head of the queue."

Which is exactly why these groups ought to rely on private charity instead of muscling in on money we saved for ourselves. Might sound harsh but I bet it would be popular. Nobody likes watching their savings being diverted elsewhere.

[Nigel C]

For the last few years private pension providers have been indictaing you may be better off contracting in to the State Second Pension. They may have been wrong based on comments above.

I have never believed Governments could maintain long term commitments on levels of pension for decades ahead and commit future generations to unsustainable levels of taxation.

We need a systems that rewards personal prudence and saving while providing a safety net for the most disadvantaged. Is link to earnings part of that safety net? Probably but a lower absolute level of support and without costly means testing.

Let people keep more of their money and trust them to make the right choices for their old age. I am with Richard on the issue of more private sector involvement. We need to radically rethink the welfare state. We need smaller Government.

I would recommend "What a welfare state we are in" by James Bartholomew to all.

[AlexW]

I disagreed with IDS over this issue then and I disagree with it now. The rationale behind pensions is to provide a minimum standard of living to those who have not been able to save enough for private provision during their working life. This minimum standard of living must be taken as an absolute reference (i.e. can pensioners afford food, clothing, shelter, council tax etc.) rather than a relative one. Given the prospect of a society where there are only two persons of working age for every one of retirement age (one barely remedied at all by raising that age to 68 given that life expectancy is in the high-70s and rising), this is a serious fiscal burden. Moreover, much of the basic pension is misapplied: only a fraction of pensioners live on the basic pension alone, and whilst it is just that they enjoy a reasonable standard of living, there is doubtless resentment from poorer working people towards wealthy retirees who use the state pension to top-up an already healthy private or company plan.

[david]

So you Tories promised to return the link to earnings So easy when you are in opposition! (just like that)

Did IDS criticise Lady Thatcher for taking it away in the first place, did he apologise?

Will DC promise to immediately give back pensioners the £52.50p per week that the break with earnings has cost them? So if you retired in 1981 will you get back all of that back pension?

What an election winner that would be !!!!!

[Yet Another Anon]

I don't think that the earnings link should be restored and I think that the focus should be on moving to Universality generally rather than uprating benefits in line with earnings, in fact in the case of benefits for people aged 25-64 this might mean implimenting cuts in benefits as the New Zealand Government did in 1996 to reduce them to 1948 National Assistance levels - the focus has to be on broadening the safety net rather than making them comfortable to live on, involving replacing Free Healthcare, Free Education and things such as Housing Benefit, Council Tax Benefit and the Social Fund with Low Interest Loans repayable over a certain amount of earnings and there being additions based on number of years since the age of 55 or whether the person was Severely Disabled or not, abandoning seperate rates for couples from Single People and moving towards having fixed rates per person (ie for a couple with Children a Family Addition might be a certain amount for each parent resident looking after the child, so a Single Parent would get exactly half what a 2 parent family with children got and Single People generally would get half what Couples would get).

In addition abolition of overcrowding rules relating to residency and perhaps making National Insurance Benefits supplementary rather than an alternative to other benefits and reducing them, perhaps shifting the focus away from Pensions and Unemployment and towards Family Based Contributory Addons and Contributory Benefits related to Severe Disability with things such as Sick Pay, Maternity Pay and Paternity Pay abolished.

[Yet Another Anon]

Things such as State Provision of Social Services and Direct Intervention needs to be scaled back to only be related to those known to be Children, Chronically Sick or Severely Disabled - really otherwise in the main the state should leave people to look after themselves much more than it does now, obviously it is desirable for people to have a roof over their head and to have a minimal income - I am rather inclined to think that the whole of the UK's Council Housing Stock should be transferred to a National Housing Charity Limited by Guarantee and that Housing Benefit should be replaced by Loans for being housed in such property, the properties it built would be minimal with no Central Heating or any other such luxuries - the aim would be to provide a secure location to put their things and for them to live in nothing more, merely utilitarian.

[Yet Another Anon]

>>>>Media reporting gave a different story. You could not believe what you were hearing. It's as if they were reporting a conference somewhere else. These were, of course the opening shots in the IDS media assassination. That's when the nightmare began.<<<<
It's important to remember that it was a majority of Conservative MP's who did the backstabbing arranging a palace coup putting Michael Howard in bypassing the party members, the media did seem mostly to be rather hostile but right from the start so were the supporters of Kenneth Clarke and the Portillistas who always resented the fact that their favoured candidate hadn't won.

[Matthew Oxley]

Both of these are good moves but are only part of the picture.

People who rely on the state pension for >75% of their income tend to spend all or most of their income in work anyhow and therefore the savings problem isn't particularly with these people. If these people do save, they'll probably fall victim to means testing. For this group, things are more certain and I welcome this.

However, the problem will be much more with those in the C1 and even B classes. The pressures of consumerism are unfortunately the problem and the lack of financial incentives to save mean this group will have a huge shortfall that these measures will not significantly address. Blaming consumerism may sound like a left-wing rant but it's the truth of the situation, I have no problem with consumerism but I think people should be given more choice, in terms of being able to save for retirement.

The B's and C1's are Starting work at 22 (as opposed to 18) typically, with plenty of debt and need to worry then about buying a house at 6x their starting salary. You think they'll save into a money-purchase scheme in their 20's? not likely. When they get into their 30's they'll want to soup up their life a little, they might be making some pension contributions but not enough - the difference between what they are saving and what they ought to be saving is being spent on new products and services.

Then these people will reach their 40's, suddenly they are taking note of their projections for retirement and do start madly saving... the only problem is that they still need these extra goods and services so they'll buy them on credit and use the house to refinance it - an asset which would be important to them in retirement.

Of course, it's not the fault of middle England that we are saving enough , though. The biggest problem is means testing, people on the median income or slightly higher, might well be wise to seriously consider whether it's worth them saving if much of the extra benefit is eroded through means tested pension credits, housing benefit (if they don't own their home) and other benefits.

But let's remember too, that even if everyone was forced to suddenly save a fixed amount more, this still wouldn't do anything if people did not reduce their consumerism - people would still find a way to spend the same amount of money and therefore inflation would make the additional money saved by tomorrow's pensioners useless.

There's no easy decision here, because they all come down to reducing people's disposable income (through taxes or otherwise) in work, but it needs to be done, and it would be far better done in a way which brings choice.

Scrapping the SIPP's incentive to put property in pensions was a disaster - this is exactly the kind of incentive middle class people needed.

Until there is less means testing (which hopefully will be the case with a higher basic pension, now), and more incentives to save during working life (giving the person a real choice between consumerism or saving for a better tomorrow) we won't solve a problem which will leave tomorrow's pensioners relatively poorer.

[stephan shakespeare]

For the record, the YouGov poll that had the Tories with a 6% lead was taken directly after the Conservative Party conference. Each party gets a predictable little spike upwards after their conference due to the media attention.

IDS did do better than is generally remembered, though, especially compared to Michael Howard, who certainly didn't improve Tory ratings for any sustained period.

[real-tory]

This is a backward policy and yet more confirmation, if any were needed, that on the big issues that count Cameron is a continuation of the past four failed leaderships (for those with short memories: Major, Hague, IDS and Howard), not a change.

The Conservative Party should be finding ways make it worth people's while to add to their state pensions, not creating this unsustainable new entitlement, which will cause higher taxes and government spending.

Oh sorry, I forgot, Cameron and Letwin want higher taxes and higher spending. My mistake.

[James Hellyer]

The government's proposals aren't terribly impressive. Raising the state retirement age is a necessity, but the real emphasis should be on encouraging saving through compulsion and tax breaks, and not on the means tested morass currently on offer.

[david]

Have just read Yetanother anons ideas on pensions/social housing etc.Yet another anon is obviously a genius. Please promise me that he/she will be allowed to write the Conservative Manifesto for the next General Election.

Kind Regards

G Brown (almost PM)

In expectation of a 250 majority

[Ted]

The clarifications from HM Treasury look very much like Gordon looking to put back the earnings link beyong 2012 if at all (already pushed back from Turner's 2010 at his request to Blair).

We have the oppurtunity here to put forward a policy more closely based on our & Turners thoughts which would be a more attractive policy than this faulty compromise fixed up between Blair & Brown which like all Labour announcements is less than it seems when properly analysed.

[Matthew Oxley]

Well you're obviously not Gordon Brown, you signed your name as david, silly.

[Yet Another Anon]

Not only that but the government is moving all Council Housing towards Housing Associations which actually are very similar to charities except regulated by the Housing Corporation, although they are doing this by the incredibly long winded and expensive method of having local votes on it, naturally dogmatic Local Authorities will seek to retain the Housing under Council control despite the fact that since 1979 a third of all Council Housing Rent has had to go to the Treasury.

[Malcolm Shykles]

On Restoring Confidence in the Pension System.

Apart for having a Labour Government put tax on dividends and undermine the whole point of saving money in Pension Funds the next job to tackle is "Pension Robbery by Financial Advisors"

A better term for these people would be Financial Rogues or even Financial Crooks.

I have just been quoted the following commissions for;

“Saving for retirement” – 25 year term 50% of the first 12 month’s payments plus 0.5% of all payments from month 13.

“Savings and Investments” – Personal and Stakeholder pensions; 4.77% of the amount you invest.

So there could be a year’s profit gone immediately!

To cap it all At Retirement – You actually have to pay again! e.g.

Commision on Income Drawdown;

5.09% of the amount you invest plus 0.75% of your fund value each year from year 2.

What work is involved?

Income Drawdown is like taking money out of a bank. Phone your Fund Provider when you wish to take money out and record the yearly sum on your tax return. All that is required is a table of what you are allowed to take out given your age and credit. – What could be simpler!

Deliberately making things sound complicated is an attempt to justify their fees. The paperwork costs the same whether it's £1,000 or £1,000,000.

The worse thing is that you have no choice. You are forced to use these beggars by the Inland Revenue.

Anyone with any sense can often make better investments than these Pension Funds.

My message is this "Do not waste time on Pension Funds - Get yourself a good stockbroker."

[Malcolm Shykles]

I have today discovered that my Financial Advisor has gone into liquidation!

You've got to laugh!

[Stephen Yeo]

Michael Howard had next to no enthusiasm for the policy and when he became leader he did not pursue that programme

Of all the one-eyed comments I have read from the Editor, this may take the biscuit. He and I both know that the policy would never have been announced in 2003 without the active support of Michael Howard. And he certainly did pursue it when he became Leader - it was in the 2005 manifesto! - not least because Labour went into that election without a pensions policy. Of course, there are others, including the present Shadow Chancellor, who have been less enthusiastic, but they too have warmed to the policy now that the tide is running so strongly in its favour. Indeed some are now claiming to have been strong supporters for longer than I remember.

But before posters get to hung up on the earnings link side of the equation, they should not forget the other side of the Willetts policy, which was to link Pension Credit to prices rather than earnings. That, equally radical suggestion was (and is) just as important to reverse the spread of means testing. Labour's policy allows means testing to spread for another six (or more) years and then only stops it spreading further. This will do nothing to improve the incentive to save for the middle third of society.

[Editor]

Stephen: I will not comment on what you say about pensions. You are the great sage on these issues but on Michael Howard and the earnings link... you know there is a big difference between having a policy in a manifesto and actrively promoting it. Michael Howard did not promote the policy he inherited because he had little enthusiasm for it. It wasn't even one of his ten words. Sorry but I don't retreat from my comment one inch.

[Stephen Yeo]

...as this this thread is about pensions, perhaps I can try to shed some light on why everyone seems to be enthusiastic about the earnings link, when we all thought it was unaffordable.

The consequence of a state pension that declines relative to the level of means-tested support is that it reduces the incentive to save of those people in the heart of the working population who could do something to help secure their old age. Means-testing is also complex, intrusive and unpopular.

Willetts' analysis showed that Brown's rapid spread of means-testing provided an opportunity, in that we could, for the first time, afford a policy that would both encourage people to disentagle themselves from the state, and enable us to reach beyond our core vote for support. (For example the TUC have called for the earnings link to be restored for every year in the last 25, except for the year in which it became Tory policy.)

Costings showed that the policy could be afforded for at least the first parliamentary term.

Those who were nervous about the policy were uneasy that there wasn't a costing for it in second and subsequent terms, though if all policy areas had to satisfy this test we would spend longer arguing and have even fewer policies.

Lord Turner's proposals pay for the restoration of the earnings link by cancelling contracting out of S2P for some pensions, which covers the next few years, and increasing State Pension Age for the decades beyond. Until Turner suggested this latter change, which now seems to have widespread support, no political party wanted to be the first to call for it. It is, of course, the sort of debate we could have engineered once in Government, in the same way that Labour have done.

You are quite right to draw attention in this thread to Willetts' role in leading the way on this issue. It is ironic that a policy that seemed so radical at the time, and which some diehards still, in their blinkered and almost tribal way, see as a betrayal of Thatcherism, now seems almost tame with the passage of time.

[paul wing]

In 1997 Gordon Brown stole £5 billion pounds from our pension funds and has continued to do so every year with the result that pension funds are in a pretty poor state. Gordon Brown refuses to comment and justify the thinking behind this theft which affects everyone single person who contributes to a private pension fund. Gordon Brown makes no such contribution. His MP/Ministers pension, to which he contributes a small % of his income with the vast balance being made by the tax payer, is inflation proof, guaranteed,extremely generous and totally unaffected by his tinkering with pension funds or the state of the stock market. One rule for him and other for everyone else! Little wonder he refuses to make any comment. When will the Conservative Party wake up and do something about this disgraceful robbery or do we want to pretend that it really isn't a problem.