November 7, 2007 | posted by Pam Atherton in Pensions |

News that the political consensus around personal accounts is unravelling is cause for concern for anyone who cares about pensions.

After years of debate and reports as to how the UK pension system could best be reformed, the advent of auto-enrolled personal accounts for low to medium earners in 2012 was much to be welcomed

But now the Tories, led by Shadow Pensions Minister, Chris Grayling, are attacking the new scheme for its incompatibility with means-tested benefits, saying that personal accounts should not be unleashed on an unsuspecting public.

He has a point. On the Government’s own estimates 600,000 individuals, mainly low paid workers, could find themselves worse off with personal accounts than if they had saved nothing. Personal accounts might simply serve to reduce what these people would have received from means-tested benefits.

But predicting who might, or might not, lose out in the future is a near impossible feat because of numerous unknowns such as future salary inflation, demographic changes, longevity and the social and pensions policies of future governments

For instance, who knows what type of social security system, if any, we will have in this country in 40 years’ time.

We already have an ageing population, rapidly increasing longevity and political parties of all hues generally favouring individuals coming off state benefits where possible, with the notable exception of our current Prime Minister who remains firmly wedded to the means-tested pension credit which is causing so many problems.

So for the Tories to object personal accounts solely because of the possibility that in 40 years’ time, some individuals might possibly be worse off because of the availability of better state benefits, seems a tad extreme.

What Mr Grayling, and all others who are concerned about the unintended consequences of personal accounts should do is to lobby for amendments to the Pensions Bill which would allow people with modest sums invested in personal accounts to either have their fund paid back to them or to have this money disregarded for means-tested benefit purposes.

But as with everything to do with pensions, promises made today cannot be guaranteed to be kept by future Governments in 30 or 40 years’ time.

Unless, of course, today’s political parties commit to a long term consensus on pensions, a commitment which would have to be respected by future generations of politicians, as happened in Australia when it introduced its own national pension fund.

A bi-partisan and pragmatic approach is the only way forward. Otherwise, personal accounts will end up dead in the water.