By Tom Murray, Head of Product Strategy, Exaxe.
Trips to the polling station are becoming as ubiquitous a sign of summer as a hosepipe ban or the smell of barbeques burning when you return from work.
Whatever the reasons for these exercises in democracy, it is the overall effect of constantly appealing to the public that has the most significant impact. It makes it very difficult for any government to focus on long-term policy, when every move they make will impact their chance of success in the next national poll. This results in even the best governments becoming far too focused on short-term tactics rather than long-term strategy.
Pensions is a prime example of a policy area that doesn’t thrive in these conditions. In the first place, the constant changes of minister causes problems. In 2014, Steve Webb was the pensions minister, to be replaced by Baroness Ros Altmann in 2015 and then quickly succeeded by Richard Harrington in 2016. There is a reasonable chance that by the middle of July, a fourth minister will be in place, giving us an average of one minister per year, across the period.
The area of pensions and long-term savings / investments is a complicated one that many struggle to come to terms with. Devising government policy in this area is therefore a complex business. It is not an area that is suitable for this type of ‘bungee’ minister – here one minute and then gone the next – as it takes considerable time for a minister to read-in to the part, in order to be in a position to take the decisions required to implement the government’s policy in this area.
It is also an area in which constantly changing policy makes it difficult for even professional financial advisers to help their clients, as what may be the correct advice now may well be bad advice when a new minister comes in and alters the policy. Pity the poor clients who cannot afford advisers and are left to make these decisions amid the fluctuating political background that comes from this level of political instability.
Long-term savings policy screams out for a different approach. There is a strong case for a cross-party committee that would take over the minister’s role and would have the sole right to devise policy and propose legislation. Clearly, in a democracy, the government of the day should supply the broad parameters for this policy and the legislation would be subject to the House of Commons, where the government has a majority.
Nevertheless, it would help to provide those looking to invest for the long-term for their retirement with the stability that is needed to make decisions that are focused on decades rather than years or even months and which therefore cannot be shaped by the urgent need to have support when one goes to the polls on completely different issues.
Of course in the case of a general election, this kind of committee would be up for re-election, at the risk of a 100% turnover. That risk could be mitigated by making the committee not only cross party but a joint-committee of the Lords and Commons. The members from the Lords, not being up for re-election, would help to ensure that the expertise and decision making of the committee were not swept away by a drastic change in government demanded by an election.
It is essential for the UK that more people save with longer term targets in mind, particularly as the demographic situation means that there will be fewer and fewer taxpayers proportionally to support the elderly in their old age. Long-term saving demands stability in the savings strategy that cannot be assured when the minister is constantly changing. Beyond pensions there are also the looming crisis in the provision of care and the huge costs associated with it that would also be better served by being legislated for in this manner.
The next government should address this issue by recognising that long-term savings and investments require the kind of constancy that cannot be provided by a politically biased minister or government, as all governments fall eventually. Long-term policy needs to be protected from the ebbs and flows of political fortune, if the people are to have enough confidence in it to commit a significant portion of their earnings to the system.
Having a pensions minister is actually becoming a barrier to the success of long-term savings. Ending this would not necessarily be the most glamorous policy approach nor would it get great headlines in the news cycle but it could end up being one of the most significant changes that any government has made in recent decades in terms of the benefit it delivers to society.
|
.jpg)
