George Osborne’s failure to build expert consensus before his shock announcement of the pension freedoms means the policy is a job half done, former shadow chancellor Ed Balls told advisers.
Balls (pictured) told advisers at the New Model Adviser® Conference they would play an important role establishing agreement among experts on the specifics of how the pension freedoms should function, through regulations for example.
While the freedoms could face a mis-selling scandal, considering the emerging problems with pension transfer advice, specifically to British Steel Pension Scheme members, the policy could not simply be unwound, he said.
He said the public had already embraced the principle of pension flexibility, meaning the only option was to execute the policy better.
Balls told advisers: ‘The short-term or gimmicky reforms could cause a problem in the way you give that advice. But what is it about a policy that means it becomes part of the consensus and therefore lasts?’
He said policies that build ‘consensus’ do so because they become embedded in the public psyche or because independent experts have come together and support an idea.
In the case of the pension freedoms, Balls pointed out there was no prior consultation.
‘The jury is still out,’ he said. ‘It would be interesting to see if there was a mis-selling scandal what the consequences would be.
‘Enough people have already decided being able to make choices about their future is not something they want taken away. The question is how we get the reforms right and how we get the regulation right.’
Balls added that auto-enrolment, the coalition government's other major pension policy, is the ‘other way around’ as it has achieved expert support but has not yet been accepted by the public.
‘In the case of auto-enrolment there has been a big take up, but if you said to people do you know what auto-enrolment is, [would they know]?
‘When the contributions went up next year and someone said let’s make it opt in or even removed it, would there be a public reaction? I’m not sure. I think auto-enrolment is a great policy but I don’t think it’s culturally embedded at all, so the government needs to think really hard about the regulatory regime for pension freedoms but in the case of auto-enrolment there is a big job to win hearts and minds.’
Steve Webb, Royal London policy director and pensions minister during the coalition government, said he agreed with Balls that governments will now struggle to get rid of the pension freedom reforms as they have been accepted.
‘I think that pension freedoms “go with the grain” of consumer expectations these days - many don’t want a pension scheme saying they can have a set figure on a set date, they want flexibility. So although the announcement was the product of two parties working together rather than all parties, it would be a brave politician who now went back to saying “I know best” what you should do with your money.’
Webb also agreed that auto-enrolment still has a way to go to achieve public consensus but was optimistic it would.
‘Although the April 2018 and 2019 step ups are important landmarks, I would be confident that these will pass largely without incident and people will gradually start to build up more meaningful pots, making it harder for a future government to reverse the policy. Extending it to 18 year olds helps to embed the policy, as it will become simply “normal” that when you have a job, you have a pension.’