Future pensions policy

Democratic politics is, at its heart, about finding solutions that compromise between different legitimate interests, values and people in our society. We make the most progress in tackling pressing problems when those from different political backgrounds and walks of life can shape and agree policies.

Look at Britain’s impressive progress on mitigating harmful carbon emissions. There has been cross-party consensus on tackling climate change in recent decades, leading to the passing of the Climate Change Act in 2008 and the adoption of ambitious legally binding targets.

Important investment in the crucial early years is another example. Recognising its importance for parental employment and child development, governments of all colours since the mid-1990s have acted to increase the affordability and quality of childcare.

Pensions – specifically, the need to increase savings for retirement – has also been a critical issue that has attracted broad agreement between different interest groups and across the political spectrum. Automatic enrolment into workplace pensions, devised by the pensions commission in the mid-noughties under a Labour government and introduced by the coalition government at the start of this decade, is proving to be popular and effective.

But there is more to do. There are five particular policy issues with pensions that need urgent attention from politicians and policymakers:

• First, extending workplace pensions to more people
• Second, increasing default and voluntary employer and employee contributions
• Third, ensuring the tax system provides good support to lower earners
• Fourth, reducing the overall costs through scale, competition, regulation and product design
• Finally, ensuring government and other actors provide better advice and default pathways for individuals during workinglife and retirement.

When it comes to future pensions policy, there is considerable common ground but no clear cross-party vision for the next stages of pensions reform. Bright Blue and The Fabian Society, representing the intellectual right and left, have a track record of coming together to find common ground and practical policies on pressing problems. We want to do that now with the next stage of pensions reform. Our latest essay collection, which includes contributions from leading decision makers and opinion formers from different political and professional backgrounds, is the start of this conversation.

All our contributors, unsurprisingly, celebrate the success of automatic enrolment in workplace pensions. It is proof of the value of a steady, long-term, partnership approach. The same incrementalism continues to be valued, as our writers look forward towards the next stage of pensions reform.

The pensions minister, Guy Opperman MP, says he wants to examine the case for broader coverage and higher contributions, by building good evidence first. Neil Carberry from the Confederation of British Industry (CBI) warns against higher compulsory employer contributions. But even Frances O’Grady from the Trade Union Congress (TUC) and Alex Cunningham MP, the Labour Party pensions spokesman, only want to see gradual change so that jobs are not put at risk. In the next stages of automatic enrolment there are reasons for thinking that consensus can be built.

Where our contributors disagree is on the breadth of the pension reforms they want to see. The Government’s focus is almost exclusively on increasing saving. Others want reforms across a wider waterfront. There are calls for sweeping changes to ensure that pension funds maximise value for their members through scale, transparency and good governance – and that schemes can introduce new collective pension pots to pool investment risks.

The most important controversy is on the question of what should happen to pension funds at the point when people retire. This is a classic clash between liberalism and paternalism, which marks to some degree the intellectual traditions of our think tanks apart. Guy Opperman MP emphasises good advice so people can choose for themselves how to spend their money. However, Jannette Weir and Iain Clacher present consumer research to question whether this will ever be enough. They are among those who argue that the aim of a pension is to produce an income for life and we will need new default retirement options designed with this in mind.

To get the next stage of pensions reform right, the left and right need to listen to and learn from one another. The Fabians and Bright Blue will be continuing this conversation.

Saving for the Future: Extending the Consensus on Workplace Pensions, is published by the Fabian Society and Bright Blue today.