14th March 2013
Baroness Sally Greengross says that UK society is in denial about ageing and, unfortunately, she is largely correct, though we think Mindful Money readers may have a slightly better appreciation of the issues. But the first step surely is for politicians to accept that reforms that help address these demographic challenges, no matter how controversial, need to be brought in quickly and efficiently. There is a lot of denial around Westminster, thought not it seems in the House of Lords. Perhaps they have more empathy about these issues.
That doesn’t mean that legislation should be rushed through without consultation, particularly if some groups are likely to lose out.
But the track record suggests that there is at least a five year delay and often more between politicians of any hue accepting a need for change and that change actually happening. That is despite the announcement just before the Budget that two reforms will at least be introduced a year early in 2016.
But here are some of the worrying examples.
The Dilnott Commission on long term care commission reported in 2011. The report was finally accepted, at least in part, by the Government earlier this year. The reform will apparently be enacted in 2016 with a cap on the public’s potential spending on nursing care costs of £75,000 as the Telegraph reports, but we won’t know the details for definite until we see the legislation. It is notable that implementation comes long after the next election and it is not guaranteed to stop forced house sales. The previous Royal Commission on Long Term Care reported at the turn of the last Millennium. It was also a bid to address the issue of forced house sales. A cynic might say Labour and the Tories have spent at least six and maybe 13 or 14 years grappling with the issue.
The reforms to the state pension which should see it flattened and upgraded to around £144 abolishing contracting out in the process was mooted at the beginning of the Coalition Government’s term in office. We have a little bit more sympathy about this reform because it involves considering entitlement to SERPs and the State Second Pension built up over time. To get to the goal of a flat state pension on which you can build private savings may take some time.The Pensions Advisory Service explains here.
But the legislation being considered by a Parliamentary Select Committee at the moment doesn’t even have a date on it though now the Treasury is suggesting it will be 2016. Once again that is after the next election.
The new workplace pension reform involving auto-enrolment where workers are opted in unless they opt out is at least one reform being rolled out as we speak at least at larger employers. It was first proposed by the Turner Commission in 2005. It will be fully implemented i.e. with the full eight per cent contributions in 2017. Small and medium employers join the system – yes you guessed it – after the next election. In our estimation since the reform was accepted supposedly by all political parties in a rare consensus the reform has taken a dozen years to get to its full implementation date.
If you ask a pension professional they often suggest you need to be putting a percentage of salary divided by half your age into a pension if you haven’t started yet. A twelve year delay may make an eye-watering difference in what is required.
Mindful Money would be the first to admit that none of these reforms are uncontroversial. The long term care proposals will be partly funded by fiddling with the inheritance tax thresholds. The state pension reform may mean some people will regret contracting back in to the state system though they couldn’t have known at the time.
The workplace reforms will prove unpopular especially with many employers who may view it simply as a tax. But that really isn’t the point. All these reforms have moved at a snail’s pace for reasons of political expediency. Ministers seem prepared to be controversial, if the controversy is likely to hit five or ten years in the future. But that’s exactly what shouldn’t be happening with reforms to deal with an ageing society.
We are sure Sally Greengross and the House of Lords committee understands this. But society is in denial partly because politicians are in denial as well.