An appraisal of the Pensions White Paper proposals

AuthorHoward Flight
Publication Date27 Feb 2007
An appraisal of the Pensions
White Paper proposals
Howard Flight
Shadow Chief Secretary to the Treasury, 2001-2004
Purpose – This paper seeks to evaluate the Pensions White Paper proposals against down to earth
and relatively obvious objectives and criteria; and to suggest some options – no matter how politically
difficult – which need to be considered.
Design/methodology/approach – The paper assesses eight objectives which the White Paper
should meet, namely: increasing retirement saving and reducing the savings gap; adequate minimum
income for all aged over 75; incentives for retirement saving; simpler retirement saving products;
tidying up state saving schemes; public sector and private pension provisioning; retirement saving
products and arrangements for changing times; and stability for the future.
Findings – The White Paper has the hallmarks of a compromise and politically crafted palliative,
which is in danger of having unintended and contrarian effects towards reducing rather than
increasing pension savings.
Originality/value – The paper offers a critical appraisal of the Pensions White Paper proposals.
Keywords Pensions, Retirement,United Kingdom
Paper type Viewpoint
This government’s track record on pensions and retirement saving over the last nin e
and a half years is not one to be proud of. They inherited the best pensio n provisioned
economy in the world. Under their tenure the savings rate has nearly halved; pension
saving has fallen substantially; five sixths of company, final salary schemes have been
closed since 2000 and 65,000 Employer Pension Schemes have closed since 1997. About
120,000 people lost their pensions when their companies went bust. Labour’s ACT,
“stealth tax” reforms of 1997 have not only cost pensions £5 billion p.a. in lost
recoverable ACT, but also served to make the stock market fall of 2001-2003, 20 per
cent worse than would otherwise have been the case. (The market bottomed when
equity dividend yields – without ACT credits – crossed over gilt yield s.) This, in turn,
has led to over cautious pension fund investment policies, reducing equity holdings at
the bottom of the equity market cycle and ahead of an 80 per cent recovery, and
increasing bond holdings at the top of the bond cycle. The ACT changes are estimated
to have cost Pension Funds £100 bn in total. The government’s stakeholder pension
initiative has been a failure, largely because it lacks adequate incentives for employers
or employees to activate contributions, and where pension tax credits – however,
justified to alleviate pensioner poverty – have served as a major fiscal disincentive.
Consumer confidence in pension saving has been badly dented, largely as a result of
the extent of the stock market fall between 2001 and 2003. The Labour Government
also reduced the tax incentives for saving for retirement via PEPs and TESSAs in
substituting the less fiscally generous ISA; although, notwithstanding, ISAs have been
the one item of good news for retirement saving. Fifty-five per cent of the UK working
population now have PEP or ISA accounts; over the last five years employees saved
43 per cent more in ISAs than all employee contributions to pension schemes and
The current issue and full text archive of this journal is available at
Appraisal of
Pensions White
Paper proposals
Journal of Financial Regulation and
Vol. 15 No. 1, 2007
pp. 99-107
qEmerald Group Publishing Limited
DOI 10.1108/13581980710727038

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