Alex Cunningham: Labour stands ready to deliver a pensions system fit for all

The pension system is not fit for purpose. This is a national scandal but, to a large extent, an invisible one.

Yes, there is a great deal of satisfaction that workplace pensions are in a better place these days, due to automatic enrolment – a policy developed by the last Labour government.

But there are six glaring absences which must be remedied before we have a truly fit-for-purpose workplace pension system.

First, the workplace defined contribution system doesn’t result in a pension, but provides instead a pot of savings, which workers are expected to use to negotiate the best pension deal they can. But very few people will have the combination of actuarial, economic and investment skills to do so – and we can’t expect them to. Their pension providers should have a duty to either offer a high-quality pension or be required to default them to such a product provided by another operator.

Second, regulators should authorise only those providers that meet high quality thresholds to provide such products. It is pretty obvious that something needs to be done when even the Financial Conduct Authority (which up to now has been a guardian of the idea that individuals can negotiate with financial institutions) recognises that retirement requires regulated defaults.

Doing something sensible is, of course, harder when you have a government intent on interference. It has created its own product, the lifetime ISA, that is designed to push retirement saving towards house purchases – with the side benefit that pension tax relief could be minimised and the Treasury save money.

Third, good governance is likely to be protected where it can be scrutinised and challenged. To that end, Labour thinks that the government and regulators should hurry up and deliver the rules on the declaration of transaction costs. And legislation needs to be updated to ensure that deferred benefit schemes also have to declare transaction costs to employers and members.

Fourth, trustees ought to make it clear why they adopt the investment principles that they do. Given the long term nature of their investing, they ought to set out whether and how they have taken into account issues which will impact on the long-term performance of the companies in which they invest, including corporate governance and climate change.

Effective transparency requires not just that a strategy is published but that trustees meet with members, present what they are doing and listen to comment. Sadly the government rejected an opportunity to compel that during the passage of the recent pension schemes bill.

Fifth, automatic enrolment does not yet mean all workers have the chance to save into a pension. The changing nature of work means that this is far from the case. As the Taylor report on modern working practices makes clear, we need to bring all workers within the automatic enrolment system, in order to avoid exclusion.

Finally, the current workplace saving regime now primarily rests on defined contribution schemes where workers are effectively encouraged to cash in their pension pot at a specific point and buy a different retirement product. This exposes workers to a great deal of investment risk.

Effectively, the workplace pension system is becoming reliant on the assumption that there will never be another stock market crash. This is myopic. The government ought to investigate how we move to pensions which minimise this kind of investment risk. There is already an existing model: collective defined contribution which is established in Canada, Denmark and the Netherlands. Primary legislation has already been passed here in Britain, but the government has not put the law into action.

Whenever an election comes, the Labour party stands ready, as a party of government, to hit the ground running and ensure a workplace pension system that is fit for purpose and that genuinely works for all. And for now, while the present government totters on, we will support ministerial, regulatory and industry moves when they deliver the agenda we believe in.

Alex Cunningham is shadow pensions minister and MP for Stockton North. He has written a chapter for Saving for the Future: Extending the Consensus on Workplace Pensions, published by the Fabian Society and Bright Blue today.