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‘What matters is what works’: Labour's journey from ‘national superannuation’ to ‘personal accounts’

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Abstract

A key element of Labour's response to the Pensions Commission's recommendations for ‘a new pension settlement for the twenty-first century’ is a system of ‘personal accounts’ that will be administered and invested by the private sector. The contrast with 50 years ago, when Britain faced similar pressures, is striking. Then, Labour presented to the British public proposals for a state-run scheme embodying redistribution between higher and lower-paid workers and the accumulation of a very large fund that would be directly invested in stock markets by the state to promote faster growth. Today's scheme embodies neither redistribution nor collective control of the scheme's assets, and investment and risk-taking will be the responsibility of individuals rather than the state. This article explores the differences between Labour's proposals in 1957 and the scheme it proposes today. It considers what these differences tell us about the party's changing conception of social democracy, and highlights the irony that, with consumers’ faith in financial markets shattered by the most severe financial crisis since 1929, New Labour's embrace of a private sector solution on the grounds that ‘what matters is what works’ now seems badly mistaken.

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Notes

  1. The problem can briefly be summarised with a few contemporary statistics. In 2003 there were 3.3 people of working age for every pensioner in the United Kingdom, but by 2051 this was expected to have fallen to 2.3 (National Statistics, 2005, Chapter 2). By that time men aged 65 were expected to live for a further 22 years, and women for 24 (in 1981 the figures were 14 and 18 years respectively). Around 28 per cent of pensioner households received no income from an occupational or private pension – and those that did received on average only around £88 per week at 2003/4 prices (National Statistics, 2005, Chapter 4). A similar proportion had no savings (and of those that did the median income generated was only £4 per week). Women were in a particularly bad position – for 3.1 million women the BSP was their only source of pension income, and National Statistics (2009, Chapter 5) showed that 2.3 million of them received 60 per cent of the BSP or less.

  2. Again, figures from National Statistics (2005, Chapter 7) summarise the problem. In 2003/4, 52 per cent of men and 40 per cent of women contributed to a personal or stakeholder pension. However, the proportion of men contributing was down from 48 per cent in 1999/2000. Moreover, the low level of many contributions combined with poor persistency in payment meant that 55 per cent of men and 73 per cent of women had a total fund value of less than £10 000. In 2009, the maximum income for a man aged 65 that could be gained from a fund of £130 000 was only £721 p.a. (£13.86 p.w.), with no inflation protection (Pensions World, 2009).

  3. The number of active members of occupational pension schemes was, and is, in long-term decline – down from 12.2 million in 1967 (about half the workforce) to 9.8 million in 2004 (National Statistics, 2005, Chapter 7), to 8.8 million in 2007 (National Statistics, 2009, Chapter 7), about 30 per cent of the workforce. By 2005, a marked shift away from traditional ‘defined benefit’ (typically final salary) schemes was also under way, with the number of such schemes nearly halving between 2001 and 2005. Typically, they were being replaced with ‘defined contribution’ schemes, which transfer all investment risk to the employee. In addition, employers were typically making lower contributions to such schemes, with all that entailed for future benefits.

  4. The phrase is Macmillan's (The Times, 3 June 1957, ‘Restrictive practices “out of date,” says Mr Macmillan’).

  5. In July 1957, following the publication of Industry and Society, only 18 per cent were in favour of more nationalisation (Gallup, 1976, p. 413).

  6. Archive of the Life Offices’ Association (hereafter ‘LOA’), Guildhall Library, London: Ms. 28376/91, minutes of the Publicity Joint Committee, 12 June 1957.

  7. LOA: Ms. 28376/90 notes by the Chairman of the Publicity Joint Committee, 22 May 1957.

  8. Archive of the Trades Union Congress (hereafter TUCA), Modern Records Centre, University of Warwick MSS.292/161/14, ‘Labour Party Study Group proposals for superannuation scheme’, 10 January 1957; Alf Roberts, TUC Report, 1957, p. 352.

  9. Labour Party Archive, Manchester: Re.92, ‘Compulsory or voluntary. A note by R. M. Titmuss’, July 1956.

  10. TUCA: MSS.292/161/14, SIIWC 10/9 ‘Report of an informal meeting with the Home Policy Committee of the Labour Party, 27 February 1957’.

  11. TUCA: MSS.292/161/14, SIIWC 10 Appendix to the minutes of the 10th meeting of the Social Insurance and Industrial Welfare Committee, 13 March 1957.

  12. TUCA: MSS.292/161/14, minutes of the TUC Social Insurance and Industrial Welfare Committee, 13 March 1957; TUCA: MSS.292/166.21/2b, SIIWC 10/5 ‘The insurance industry’, 13 March 1957.

  13. TUCA: MSS.292/166.21/2a, General Council minutes, Item 61, 27 March 1957; TUCA: MSS.292/166.21/2a, Tewson to Phillips, 5 April 1957.

  14. Crossman Papers, Modern Records Centre, University of Warwick: MSS.154/3/S/204-419, Re.152 ‘Draft policy statement on National Superannuation: Labour's policy for security in old age’, April 1957.

  15. Crossman Papers: MSS.154/3/S/1/1-203, ‘Contracting out. Note by Tony Lynes’, 20 February 1959.

  16. See, for example, Martin Wolf's (2005a) immediate reaction that ‘The Pensions Commission wishes to nationalise a part of the UK's financial sector’ and his (2005b) reporting of complaints by the Association of British Insurers and the National Association of Pension Funds that the NPSS would effectively nationalise the savings industry because it would be unable to compete with such low costs. See also Treanor (2006), reporting the views of Peter Butler, ‘One of the City's most respected fund management activists’; and the assertion of the financial editor of The Times (Seargant, 2006) that the NPSS was ‘a semi-compulsory nationalised rehash of the unpopular stakeholder pensions’.

  17. Pensions Bill, 2007-08, services.parliament.uk/bills/2007-08/pensions.html.

  18. A point made by several witnesses giving evidence to the House of Commons Work and Pensions Committee (Pension Reform. Fourth Report of Session 2005–06, Vols 1–2) and repeatedly by Frank Field (2006) who warned that the scheme posed ‘the biggest risk of the mis-selling of pensions for a quarter of a century’. On means-testing see also Pensions Policy Institute (2006), and on the issue of risk see Inman and Wood (2006).

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Acknowledgements

This article has benefitted from conversations with many people but I extend particular thanks to Paul Bridgen, Nicholas Hillman, Pat Thane, Noel Whiteside and Mark Wickham-Jones. Comments made by the two referees helped to sharpen the analysis. I also owe a debt of gratitude to the Financial Times, the only newspaper to cover recent developments in pensions policy in depth, and particularly to its Public Policy Editor, Nicholas Timmins whose reporting has been outstanding. All errors are, needless to say, mine not theirs.

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    Hugh Pemberton

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Pemberton, H. ‘What matters is what works’: Labour's journey from ‘national superannuation’ to ‘personal accounts’. Br Polit 5, 41–64 (2010). https://doi.org/10.1057/bp.2009.27

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