Third Time Lucky: Building a Progressive Pensions Consensus

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Touchstone Extra pamphlet by Nigel Stanley and Craig Berry

Third Time Lucky - Download the full pamphlet as a pdf document


Pensions policy is not like many other policy areas. Important decisions can take many years, even decades, to make a difference. Policy is inevitably complicated; not only are the details of how different pensions operate highly technical, but pensions policy areas interact with others. Decisions about the shape of state provision can have a major impact on the role that occupational pensions need to play.

Making progress that sticks is therefore hard without securing consensus. Perhaps once a generation major changes occur, sometimes progressive and sometimes not. Even with positive changes, unless they secure wide support there is the danger that they will be reversed before they have made much difference or had the opportunity to establish constituencies of support.

Consensus can be a slippery word. It does not mean an end to disagreement or debate. It is better to think of consensus as binding in enough people to set the bounds of the debate by delivering a wide agreement about the basic building blocks of a policy area. Sometimes unions are within the consensus, albeit always pushing for improvements. Sometimes we are outside, lacking influence.

Consensus need not be the lowest common denominator - splitting differences and leaving no-one happy. A good consensus is built on an active search for progress that can command wide support and meet enough of everyone's interests so that they also see the benefit of not achieving everything they desire.

The long-term nature of pensions policy makes some basic agreement about the structure of pensions and the basic role of the different players - the state, employers and individuals - necessary for progress. But this still leaves plenty of room for debate and disagreement. The minimum wage is a good example of such a consensus. It is not that long ago when it was extremely controversial, with strong opposition from employers and the Conservatives. Going even further back, some unions opposed it. But after a careful process of policy development and implementation almost everyone now accepts the principle of a national minimum wage, even if there remains intense debate about issues such as its level, rates for young people, and the role of a living wage on top.

The same goes for pensions for much of the time. We can have wide agreement about structure, but still disagree about how much to spend on pensions provision or the detailed regulation needed within the overall architecture.

Unions have a fairly simple approach to pensions. We believe they are a vital part of any civilised society. When people retire they should not face poverty, but enjoy a decent and secure standard of living that offers some continuity with the lifestyle they enjoyed before they retired. We want a pensions system that is based on equality, and treats people fairly. The state, employers and individuals all have to play a proper role in delivering such a system. Pensions are part of the social wage.

But there is no one way of delivering this. Other countries broadly meet this objective more so than the UK, but do so in different ways. We cannot simply import wholesale the best method from overseas as we must start from what we have, however messy and imperfect the existing system is. People at work have already built up different forms of pension entitlements, and decisions taken years ago are still making a difference.

Our belief is that the UK is now entering a period of a new pensions consensus - the third since the modern welfare state was established after the Second World War. Building this new consensus started with the recognition by the last government that our pensions system was breaking down, and that we needed to make changes. The Prime Minister set up the three-member Pensions Commission chaired by Adair (now Lord) Turner, with trade unionist Jeannie (now Baroness) Drake and academic John Hills as its other members.

Its report has since formed the basis of a series of pension reforms taken forward by both the previous and present governments. There is general acceptance that employers should have a legal obligation to enrol their staff and contribute into a decent pension scheme, and that it should not be left to individuals to make complex decisions about retirement planning. The Commission also outlined plans to simplify and increase the level of state pensions, to provide a solid platform for private saving, eliminate means-testing and move towards flat-rate state pension provision. The coalition government has gone further than the Commission anticipated in this regard by proposing a 'single-tier' state pension implemented from 2016.

For the most part, this adds up to progressive change - by no means perfect, but much better than what went before. Importantly these reforms also have a good chance of sticking, because they have achieved a wide degree of consensus across political parties and among the various pension interest groups. Unions played a significant part in first establishing that change was needed, and shaping the policies that emerged. We are proud of that role, if far from complacent about the need for further progress.

Consensus has secured agreement about the basic architecture of the pensions system. But there is still much to do to make it a reality and important ways that it can be made better within the structures and approach set by the Pensions Commission. This Touchstone Extra is an attempt to outline the shape of the new pensions consensus and the issues that trade unionists and others who share our desire to build a decent, comprehensive pensions system need to consider if we want to shape it in a positive direction for the future.

Table 1: Pensions policy consensus over time (summary)




Collective provision

(1950s to 1970s)

Social insurance

Employer benevolence

Arms-length management

Individualised pensions

(1980s to early 2000s)

Safety net

Limited obligations

Direct sales to consumers

New consensus

(mid-2000s onwards)

Savings foundation

Minimum contributions

Collaboration with employers

Much of our argument is based on understanding the differences between the three periods of pensions consensus that we identify, starting with what many see as the golden age in the decades following the second world war.

Understandably, some call for a return to this first pensions policy consensus, with generous state provision and employers voluntarily shouldering most of the risks of pensions saving. There are certainly legacies of that period that are as appropriate today in parts of the economy as they were then - such as quality defined benefit (DB) schemes in public and private sectors - and we defend them.

But going back to the kind of provision we enjoyed then is neither practical nor wholly progressive. It is impractical because the economy has changed beyond recognition with few companies exhibiting the stability and commitment to maintain the long-term commitment needed to guarantee DB promises. Indeed this was clear even in the 1960s when Barbara Castle went beyond Beveridge's original flat state pension by introducing earnings-related pensions for those not in good occupational schemes.

Nor, despite some attractions, is a wholesale return to the first consensus desirable. The key building block of both state and private pensions in the post-war years was the male breadwinner-led nuclear family. Even at the time that assumption did not cover everyone, but it is totally inappropriate now. Indeed providing women with adequate pensions in their own right has been a clear objective of recent pensions reforms.

But while the first consensus was progressive for its time, what came next was much less so. The second consensus started in the 1980s and lasted until the Pensions Commission wrote its obituary. It was based on 'individual responsibility' and a belief that a competitive pensions market would provide optimal outcomes, because that is what markets always do. Employers could thus withdraw from long-term pensions commitments, even if pension contributions would be encouraged by worker preferences within the labour market. The state could retreat to the role of providing a meagre basic pension with a 'safety net' for pensioners that had been unable to do better.

The second consensus evolved from the gradual collapse of the first. But while the first functioned reasonably well within in its own terms for many years, the second never delivered a pensions system that worked for the majority. As that became more and more obvious, the then government set up the Pensions Commission which delivered its blueprint for what we label the third consensus.

Our mission now is to fully realise the promise offered by this new approach, getting the structures right and putting enough money from individuals, employers and state into them to make them work. This requires, first, a full understanding of why the market oriented approach of the second period failed, and second, the construction of a new system that does not just meet union concerns, but also builds a sustainable consensus that can at least match the thirty years or so that the two previous periods have achieved.

Because the detail of pensions can get technical quickly, many people shy away from pensions policy. Of course we need technical experts, but the basic issues and choices we face need wide engagement. Pensions, more than many other policy areas, involve decisions about priorities and what trade-offs to make. It is right that there is the broadest engagement in these issues, particularly if we want solutions to stick. This is another reason we have developed our 'three period' analysis as we think it brings out the basic assumptions and trade-offs of the big picture.

We have written this pamphlet not only because we want to engage with the wider pensions policy world, but also to rescue discussion about pensions from the experts. So while we do consider many current policy issues and engage with them, our main purpose is to provide a pensions policy primer, unashamedly dealing with the big picture of policy making. We hope therefore that it will find an audience among non-pensions experts, particularly in the trade union movement, who want to understand the issues at stake. We do not deal with every pensions issue, such as how pension funds should invest savings and act as responsible owners of their investments. While this is an important issue - and done well does result in better pension returns - we concentrate on scheme design and other pension policy issues here.

One reason why unions were influential in the work of the Pensions Commission and in subsequent debates is that we have worked with allies and engaged with the other legitimate interests in the pensions debate. Consumer, advice and charity groups have a large shared agenda with unions, but we have also worked with good employers who have not wanted to be undercut by the bad.

Furthermore, while we are sometimes critical of the commercial pensions industry, there are many people within it who want to see good pension outcomes. The problem is that the second consensus structures too often incentivised them to behave badly. There is also a range of experts and professional bodies who have much to contribute, even if all sides of the debate need to be aware of the vested interests that almost all bring to the debate. But the more that unions can build progressive alliances, the more influential we will be and the more likely change is to occur and be sustained.

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