Opposition says changes to pensions market should go even further but won’t commit to voting for Tory plans
Labour has backed the principle of George Osborne’s plans to allow people to spend their pension pots and called for an even bigger shakeup of the market, but has refused to say whether it will vote in favour of any legislation on the subject proposed by the coalition.
Rachel Reeves, the shadow work and pensions secretary, said Labour believed in greater flexibility for people to spend or invest their pension money as they saw fit and wanted to see even more reform to help savers get better deals without ripoff charges.
“I support – we support – reforms to the pension market, so people can get a better deal and have more flexibility, especially at the moment, when people are just not getting a very good deal on their annuity,” Reeves told Sky News.
“But we’re talking to people here who are coming up to retirement, who have saved all their life, and put things aside. I think we can trust those people to make sensible decisions about how they want to support themselves in retirement,” she said. “I would argue that they haven’t gone far enough in what they announced on Wednesday.”
Despite backing the essence of the proposals, Reeves also called on the government to set out clearer protections to make sure the plans “benefit people on modest incomes and not just the privileged few”, acknowledging that some members of her party had concerns.
Her colleague Chuka Umunna said he could not confirm whether Labour would vote for any legislation bringing in the changes, which would allow people to take more money out of their pensions without having to buy an annuity.
“We need to see the bill and I’m not going to sign a blank piece of paper on your show, as good as that may be,” the shadow business secretary told the BBC’s Andrew Marr Show.
Osborne’s announcement has created a dilemma for Ed Miliband’s party, as polls suggest it has given the Tories a boost but a number of Labour figures appear sceptical about the wisdom of the reforms.
Tom Watson, the prominent MP and a former election organiser for Miliband, has said the coalition’s plans to allow savers to take money out of their pensions in big lump sums will “pull the rug out from underneath the pensions deal that protects individuals, families and the taxpayer alike”.
Austin Mitchell, another Labour backbencher, said he believed backing the plans was a “mistake” and several of his colleagues shared that view.
Several MPs retweeted an article suggesting that Osborne’s reforms would lead to a “long-term social disaster”, while John McTernan, a former adviser to the party, warned of the “moral hazard” associated with giving people more freedom.
Others, including John Mann MP, appeared to criticise the Labour leadership for having a confused message, in contrast with “a pretty simple message from George Osborne: we’re going to help our pensioners with the mess on annuities”.
Miliband did not fully address the issue in his response to Osborne’s budget, but Reeves made a surprise announcement late on Friday night that Labour was minded to back the reforms.
Reeves wrote an article for the Independent on Sunday setting out three tests for the government to meet.
Osborne must make sure people get the right advice, and must ensure the scheme is fair across people of all incomes and does not cost the state any more in social care if people spend all their money too early and need bailing out, she said.
“We believe it’s right that people who save are given greater choice in using their carefully saved pension money,” she said. “But we want the government to go further to help people turn more of their hard-earned savings into a decent income in retirement.”
Some charities have warned that some people who cash in their pensions in order to save or invest the money will risk losing free social care in later life because this right will only be available to people without substantial assets.
The Joseph Rowntree Foundation and Age UK said this could be an unforeseen consequence of the budget reforms, as money in pension funds would not be counted as assets when it comes to means-testing for social care help.
The Lib Dem pensions minister, Steve Webb, seen as a key architect of the reforms, admitted there was still “a lot of detail” to be worked out and the government did not yet know how exactly it would be implemented. However, he previously made the case that pensioners should be free to spend their money on Lamborghinis if they wished.
On Sunday Iain Duncan Smith, the work and pensions secretary, also dismissed those questioning whether people could be trusted to spend their money wisely, saying most were much more sensible with their money than the state.
“Why would somebody who has made all the effort over the years to save, putting money aside, both in terms of paying national insurance and saving on top of that for a retirement income, why would they suddenly want to go out and just behave irresponsibly having behaved responsibly all their lives, planning for their future, giving themselves security?” he told Sky News.
“Why do we think that the state, who has arguably being the most profligate of all people with money – not ordinary people but the state has misused taxpayers’ money for generations – so why would we say that those people would actually go out and blow their money on something?
“No, I don’t think so, I think what they’ll do is try and find new areas, new vehicles for them to invest their money in that will give them a better return than they’d be getting with their annuities.”
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