The view from the top

Robin Ellison: There was consensus (over personal accounts and auto-enrolment) between the two main parties for two to three years. The Conservative Party has been playing down that consensus in the recent weeks and months. 

Angela Eagle: That is pre-election manoeuvring. I think that the Turner Commission (Pension Commission) and the suggestions it came up with (in 2005) were a compromise. No one got exactly what they wanted out of that process. People compromised on things they would have liked to get consensus on, so you could get a process that went beyond an election cycle.

You can’t put sensible pensions policy in place without having some kind of consensus which goes across the political cycle which is five years. I actually think the consensus is quite strong.

But if you were to rip it apart now you would waste a lot of years of effort and two acts of parliament – and you would still be faced with exactly the same problem that the Turner commission was created to address. 

Robin Ellison: I think most people in the room will know what the arguments for and against personal accounts are. 

Angela Eagle: But I think that is quite important, I keep talking about that because that is actually a prize that should not be given up lightly. This is the potential of seven to 10 million more people to save into workplace pensions who are not doing so now.

Robin Ellison: I think there would be a consensus about the problem, but not necessarily about the solution. There may be other people who think there are other solutions. 

Before we get on to whether personal accounts are going to solve the problem or not. First of all what do you think the risk elements are of introducing personal accounts?

Angela Eagle: The challenges of introducing personal accounts include the sheer size of the thing that we have to build and introduce. We are talking about interplay with one million employers and seven to 10 million employees who are going to be automatically enrolled into pensions saving from 2012 onwards.

If you look at what we have now, the largest provider has 24,000 employers. At the height of auto-enrolment, the Personal Accounts Delivery Authority (PADA) is planning – with their potential suppliers – to be taking onboard 100,000 employers a month.

Robin Ellison: The track record of the Department for Work and Pensions (DWP) is mixed on large computer systems.

Angela Eagle: That is something anyone can say about any large computer system. A lot of things happen in the private sector which are not under the same degree of scrutiny. But there has been large scale change in the DWP. There has been a step change – we are the only government department who has seen a 15% increase in productivity. 

Robin Ellison: You are on record already that you were slightly dismayed at the complexity of the pension system.

Having been in the job for say six months, if you were taking it from scratch, would you have a dream about what the pensions industry might look like in 10, 20, 30 years time? Or is it just going to be more of the same?

Angela Eagle: I would like to see it simplified and there are ways you can do that. At the moment we have got some things we have got to sort out – one is the 2012 changes to the basic state pension itself. That is actually quite complex. 

Robin Ellison: Is there not a vision in the department? Forget about the details. There has to be a dream by people at the top.

Angela Eagle: It is to fill the current gap that we have got in workplace pension saving; to persuade more people that they need to save more. I do not actually think many people have clicked how long they are going to live after state retirement age. 

If you look at it, it is pillars. The view and the whole idea behind the Turner reforms – which were welcomed across the parties – was state pension cannot be the only method of saving for retirement.

It was created in a time when people could expect to live one year after retirement.

Robin Ellison: The present prime minister was not overly enthusiastic about those reforms. 

Angela Eagle: You can say what you like about that but we have legislated for them. They are on the statute book.

Robin Ellison: That brings us very nicely on to why it’s so complicated. When you came to this job did your heart sink at the complexity of the legislation?

Angela Eagle: I get challenged by these things, it is no good having your heart sink because you have to see what you can do about the output, not the process. I try to remember the ultimate destination – I think that is important.

We are an advanced society, we have had years of pension legislation and approaches have changed over the years. That is just one of the things you have to contend with when you are in a welfare system that has existed for 50 years. 

This is brown field site engineering, there is no green field site in pensions. You cannot wipe away what has been there in the past – people have accrued rights, you have to accommodate that. You have to do what you can to simplify but you have to be fair to people with accrued rights. 

Robin Ellison: Does it not matter that people in this country do not understand pensions? 

Angela Eagle: The key thing here is that we have got to look at the final destination. It is very interesting for us to know what is going on under the bonnet – can we find a more efficient one, can we find a greener one? We have to have an output which comprises simple products that are cheap and affordable and people who buy them will know where they take them in the end. If I could do that in the next six months I would be rather happy.

Robin Ellison: There is a consensus about why private sector provision is declining. We know the demographics, we know the cost, but part of the problem is the added burdens that have been placed on schemes. Is there a way to fix this?

Angela Eagle: There is no easy way to fix what is happening in the defined benefit sector. There are certain things we can do with simplification to take the cost out. I retain a very open mind about whether there is anything we can do to assist. 

What we cannot do is overturn laws that have defined accrued rights as deferred pay. These have allowed part time workers access to pension saving which have all added to the cost of the promise that was made originally. 

Robin Ellison: There does not seem to be anything coming out of the DWP that looks at the many tens of thousands of pages of regulations, and every year we get another 30 sets of statutory instruments. Other countries provide reasonably good pensions with much less paper work and controls. In fact in many cases their systems are better than ours. Why isn’t anyone in the DWP looking at this differently?

Angela Eagle: I think some of it is lawyers being defensive. It might be an idea to sweep some of that away and I would be in the market for that. But as with everything in pensions you can stop things accruing like that but cannot sweep the rights away. I do not think you should ever over engineer anything.

But it’s this point I was making earlier about being a legacy system. It is a question of how you can deal with those. I am in favour of simple, low cost products that people can understand. If there was a pension which is similar to a current bank account – wouldn’t that be great? So go out there and do it. 

Robin Ellison: That brings us on the final issue of taxation. There are a lot of pension experts in the room but I think a lot of them struggle with the anti-forestalling regulations. 

There was consensus about pensions simplification. The Finance Act 2004 said we would introduce a £1.5m (US$2.5m) cap, we successfully got rid of 1,300 pages of regulations. Unfortunately that was replaced with 3,600 pages of new rules but we can skip over that – we didn’t like the cap but we live with it. It was the price to pay for simplification. 

Now we have complication again. Have you read the regulations? And if you have, could you explain them to us here?

Angela Eagle: The anti-forestalling regulations are complex because the tax regime is complex. If you look at the tax privileges that come with pension saving, and the amount of money that is given in those, and then you look at how it is distributed up the income stream you see 25% of the billions of pounds that are allowed because of tax privileges for pension saving - £6.1bn goes to the top 1.5%.

Robin Ellison: That is not true. It is only in the same way that corporates get tax relief on paying salaries to their employees, they get more tax relief on very high salaries but they are paying more money. 

Would it not have been easier to raise income tax on receipt of pensions? The new rules are causing havoc in the industry.

People are forcing some kind of divide or apartheid between the higher paid and the lower paid and that commutive interest which used to exist in pensions – between the high paid and the lower paid – has disintegrated. That is a tragedy. 

Angela Eagle: I do not accept that analysis at all. Defined benefit reached its peak in the 1960s and has been in decline ever since. It is for a number of reasons, not only the accounting issues. It is what corporates have to do globally now, a move away from providing that kind of benefit. I am not going to sit here and say that complexity has not played a part but I do not accept for a minute that someone who is earning a very very good salary is suddenly going to think ‘I am not going to provide any pension whatsoever for my lower paid staff because I do not like my tax breaks’.

There has to be an acceptance following a credit crunch that those at the top of the pay scales have to assist in dealing with the aftermath of it. 

Robin Ellison: Would it not have been easier to put the tax rates up?

Angela Eagle: If you want to approach the Treasury with that idea I am sure they would be very happy to hear from you.

 

 

Click here to see a video interview with Angela Eagle at our sister title's website - professionalpensions.com