It would seem that there’s no pot of your cash that’s safe from the ever-grasping hands of this government. Not content with dragging pensioners into taxation, increasing national insurance contributions on employers, or slamming up business rates, Chancellor Rachel Reeves now has her eyes on something else – your pension.
But the principle at stake is far, far more serious than a single bad policy. It is a question of who owns the fruits of your labour: your, or the treasury.
Thanks to changes squirreled away in the Pension Schemes Bill, Ms Reeves has bagged herself a “reserve power” allowing her to instruct up to 10% of private pension assets into private markets, with 5% specifically ringfenced for British investments earmarked by the government. Let’s just be clear about what this is.
Your pension is not a gift from Whitehall. It is deferred wages, money you earned, money you chose to save, money that belongs unambiguously to you. For Whitehall to direct how that capital is deployed isn’t stewardship, its expropriation dressed up in flowery language.
And this fatal conceit hides a deeper problem behind the entire scheme; the bizarre notion that ministers and civil servants know better than millions of savers and thousands of professional fund managers where capital ought to flow.
They do not. No central authority, however well-intentioned, can possibly gather and process the information that free markets aggregate every second of every day. As a former banker – apparently – one would have hoped this was something Ms Reeves grasped early in her career – every attempt to central plan an economy has ended in ruin.
Capital directed politically is capital misallocated and only serves to inflate bubbles in favoured sectors, whilst starving genuinely productive ventures of investment. This mispriced risk eventually produces the crisis the politicians then blame on “the market.”
Ms Reeves has been after this power for a great while. I am sure there are those in Labour who will argue they will never need to use it. They are either naive or dishonest. Coercive powers granted to the government are never truly held in reserve, there will come a time when they are used.
That is the cast-iron lesson of political history, the distinction between a voluntary accord and a mandatory diktat collapses the instant the gun is placed on the table, because every “voluntary” decision thereafter is made in its shadow.
Trustees of private pensions will now surely need to factor in the political risk this reserve power has conjured into existence into ever allocation. Not because they have been told to, but because they would be negligent not to.
Additionally there is timing problem. Politicians operate on five-year electoral cycles. Pensions are forty-year (of longer) commitments. The incentives are fundamentally, irreconcilably misaligned, and a Chancellor facing an election ‘soon’ has every reason to direct your retirement savings toward whatever infrastructure project generates the best ribbon-cutting photograph.
You, the saver, bear the cost decades later when the returns fail to materialise.
This is not a question of Labour versus Conservative, or of which party can better “deploy” pension capital for growth. It is a question of principles – in a free society, the state should not direct private capital.
It should protect the conditions under which private capital can be freely deployed by its rightful owners. The moment that line is crossed – however modestly or pragmatically – the relationship between us and state has fundamentally changed.
You are no longer a saver squirrelling away for retirement, you are a source of funds.
Rachel Reeves should repeal this clause. If she will not, the next government must. Your pension is your property, full stop.