Firing Line: Nigel Waterson

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Nigel Waterson has gone from introducing the auto-enrolment statute to chairing a company at the heart of arguably the UK’s most revolutionary pension legislation. The former shadow pensions minister, who was a Conservative MP for Eastbourne from 1992 to 2010, was one of the politicians behind the radical plans to get the nation saving for retirement, yet almost 10 years later he has deep concerns over its adequacy.

Ahead of the 2005 general election the Conservative Party’s manifesto contained what Mr Waterson called “inertia”. With the UK pension deficit making headlines and little action being taken, he was keen that the government adopt a ‘do nothing’ saving option for bulk of the population, such as auto-enrolment.

He said: “The idea was that by doing nothing people should be in the right place. At the time we all believed that if the existing providers had ignored these nine to 10 million customers then they would continue to ignore them, so there was the need for a government organisation, such as the National Employment Savings Trust.

“However, it is not so simple. By doing nothing people will end up in default funds and when they reach 8 per cent contribution levels that will not be enough to provide a comfortable retirement. 8 per cent is not enough.”

Many commentators have turned their attention to at retirement issues since the Budget’s radical proposals to liberalise pensions, but Mr Waterson was far keener to focus on the earlier stages. Whether a client buys an annuity or a drawdown product was “not important”, he said, if the average pension pot continued to languish at such low levels.

At present the average defined contribution pot is in the region of £20,000, which he claimed would buy an annuity of about £1,200. Such “worrying” figures showed that people continue to underestimate longevity, with his own research revealing that many expect to die at about the same age as their parents.

According to Mr Waterson, 16 per cent contributions was the level needed to obtain a decent retirement income, and this could only be achieved by engaging more with employers. The fact that people are now living longer and healthier was a great thing, yet he claimed that people needed to realise that current contributions would lead them to an impoverished retirement and heavy reliance on state benefits.

He said: “The biggest challenge is to make sure employers do not just say ‘job done, we have met the minimum statutory requirements.’ Steve Webb, the pensions minister, has done a lot of the right things, but he should be saying less about Lamborghinis and engaging more with employers about pensions. It needs to be tailored to each workforce and if you devote resources you will see the benefit.”

Contrary to what others have said Mr Waterson did not agree that smaller companies would be the most resistant to change. He said that, in his experience, many of the firms yet to reach their staging dates had been “more paternal” in supporting their employees. He also rejected the idea that more fund choice would generate higher returns on contributions and used the example of Nest to show that most people did not respond to options.

He said most people did not like choice, were more likely to make a mistake if they had more choice and were unlikely to monitor their investments in any case. To support this view, he added that Nest had “a good range of options available” yet “99 per cent” of its users stuck to the default fund.

As an early proponent of Nest, Mr Waterson was keen to talk up its benefits and the importance of its success. Likening it to the Post Office because it offered a guaranteed service to all, he said that for all its faults it was crucial to have a supplier funded by the taxman to step in when the traditional providers struggled with capacity.

He added: “There is no doubt that this is an extremely busy time for providers and putting a strain on people’s IT, but there is also Nest, which is there to take everyone no matter how late people get organised. Nest is like the Post Office, it is guaranteed to all.

“We want to see Nest succeed and if it fails it is bad for everyone. Some have been put off Nest because it is seen as close to the government, its offerings are a bit clunky and it is surprisingly quite expensive, but we want it to succeed because it is there for anyone who does not find a home elsewhere.”

Now that the wheels are finally in motion, albeit moving at a much slower pace than Mr Waterson deemed necessary, he was keen to talk up other measures that could be taken to stimulate small pension pots. Aside from “giving up the odd Starbucks coffee”, the chairman at Now: Pensions also felt that equity release and scrapping the default retirement age had a major role to play in resolving the UK’s future retirement issues.

At present he said that almost 2m people were working past 65 to supplement their pension income and that this level of flexibility should be welcomed to bridge the gap in available funds. Furthermore, while many financial advisers were engaging very little with clients over equity release, he urged them to take more notice of a product that could eventually make all the difference.

He said: “The average amount taken in an equity release deal is £60,000, which far exceeds most pension pots. Older generations have a massive amount of housing wealth, which could help them to pay off debts or top up a disappointing pension income.”

Daniel Liberto is a features writer of Financial Adviser

Career ladder

2012- present: Chairman of the Equity Release Council

2011 – present: Chairman of the board of trustees, NOW: Pensions

2003 – 2010: Opposition spokesman on pensions

2001 – 2002: Opposition spokesman on trade and industry

1999 – 2001: Opposition spokesman on local government and housing

1996 – 1997: Parliamentary private secretary to deputy prime minister

1995 – 1996: Parliamentary private secretary to minister of state, department of health

1992 – 2010: MP (Conservative) Eastbourne

1974 – 1978: Councillor, London Borough of Hammersmith

1972 – 1973: Assistant to Sally Oppenheim, MP

1972 – 1992: Solicitor, specialising in maritime law