Labour launched a pensions taskforce today, alongside plans to look at broadening the scope of the workplace pension scheme.
Shadow work and pensions secretary Rachel Reeves outlined plans for the task force, headed by professor Dr David Blake of Cass Business School and set up with key industry backers and policy experts, to encourage people to save into private schemes.
The group will also consider alternatives like the collective pensions schemes seen in Canada and Holland.
“For far too many people, the insecurity they face during their working life is set to continue when they retire,” Reeves said at the event hosted by the Resolution Foundation.
Labour is also considering plans to lower the threshold for automatic enrolment into the workplace pension scheme from its current level of £10,000 to the bottom earnings limit for national insurance, currently £5,772. According to the party, this could see an additional 1.5m workers enrolled in the scheme at a cost of £20m by 2018/19, including 1m women.
But there’s a snag. Various pensions experts this morning have pointed out that under Labour’s new plans, those earning under £10,000 per year would get very little out of the changes – perhaps just £10 a year or less. It would take an incredibly long time to build up a pension pot of £20,000 if you’re putting away just £10 per year.
“It’s a tiny number, just pounds per year in some cases,” pensions expert Tom McPhail from Hargreaves Lansdown told City A.M. “It’s right to address the problem but this won’t actually make much difference because the contributions are so small. It will also cause additional costs for pension providers,” he added.
McPhail also warned that when Reeves announced the policy, she spoke of the chance to build up a £20,000 pot for retirement, but this does not take inflation into account. In reality, he said, a £20,000 pension pot would be worth more like £3,000 or £4,000 years down the line.
As some commentators have suggested, those on low incomes have other more pressing and immediate needs on their incomes, and the promise of a very small pot years down the line is unlikely to feel like the helping hand Labour clearly wants it to be.