Sunday, June 11, 2006

New Labour White Elephants I: Stakeholder Pensions


There's been a lot of fuss recently about the Pensions Package agreed between Brown and Blair. But has the Tory party let the Chancellor off one of his great errors - the Stakeholder Pension fiasco - the Millenium Dome of the financial world?



Labour have been in power 9 years, and their best effort on Pension Savings is to introduce measures that will take effect in 2012, 15 years after they abolished the dividend Tax Credit for pension funds. Not only that, the additional cost of postponing long-needed changes won't increase Gordon's budget deficit - already 3.4% of GDP - but will be picked up by future governments.*

Why the delay? Well the Turner Report and current reforms are effectively admitting that just like Family Tax Credits, one of Brown's flagship policies, Stakeholder Pensions, totally bombed. These were introduced in 2001 Gordon Brown as the solution to the Pensions crisis.

Did Gordon decide that the market would best determine the optimal way for workers and providers to create long-term savings. Of course not, instead Stakeholder Pensions were to be very standardised, and to have such low charges that no-one reckoned they could make money out of providing them. So, they didn't. Now 5 years on, stakeholder pensions still don't even get £1bn of employer contributions per year, less than 20% of the damage done, per year, by the abolition of the dividend tax credit. Bog-standard ordinary personal pension plans still get over 3 timest the amount of employer contributions. (Source: HMRC website) The link to the DWP Stakeholder Pensions website doesn't even work, it just takes you to the DWP homepage instead. And who are the stakeholder pensioners? Good question - its not the low to medium earners they were aimed at but spouses of rich businesspeople happy to use an unintended taxbreak.

The result of Stakeholder Pensions has been more complexity, more changes, more confusion, less long-term savings- and a vital delay in curing a structural flaw in the UK economy. Stakeholder Pensions are classic Gordon Brown - concerned that pension providers might profit from selling pensions he designed a system so they wouldn't - and cut-off pension savings to spite UK business in consequence.

*(By contrast, the tax-cutting but fiscally stable and budget-surplus rich Australian government is already putting money aside.)

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