Personal Pension  

Enter stage right, pensions reform

Somewhat surprisingly, our sector has taken centre stage, with almost 20 per cent of parliamentary time likely to be devoted to pensions.

In total, the Coalition only announced 11 new bills, but with an election due next May it would be unrealistic to expect much appetite for normal parliamentary work as we approach that point. But even so, the two pension bills – on retirement liberalisation (abolishing the need to buy an annuity) and new group collective schemes, together with some other ancillary changes such as the provision of “advice” for those reaching retirement – are likely to be among the early enacted measures. These are “electoral winners” that both Coalition parties can take credit for.

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Yet, the two core bills are clearly from different sponsors, with chancellor George Osborne taking the lead on retirement liberalisation and Steve Webb, pensions minister, promoting the new alternative collective defined contribution schemes, although I would not be surprised if Mr Webb had had some input into liberalisation too.

I have no doubt Mr Webb will go down in history as one of the best pensions ministers ever. Not since David Lloyd George introduced the state pension or Sir William Beveridge produced his landmark report that led to the post-second world war Labour government introducing the welfare state, have we see so much pension change.

Is it any coincidence that Messrs Webb, Beveridge and Lloyd George are all Liberals? Clearly, based on the recent European election and the Newark by-election, the electorate appears to be punishing the LibDems for entering into the Coalition and it is unlikely that we will see Mr Webb back as pensions minister after the next election.

This is a real pity. Obviously Mr Webb has benefited from holding the same job through a full parliament – under the last government we had a new pensions minister almost annually – but I do not put his success down to his longevity. Rather, it is his passion, enthusiasm and know-ledge of his subject. Remember that prior to the last election he was the LibDem shadow work and pensions secretary, and his post at Bath University, where he was professor of social policy, gave him insight into the behavioural sciences that are now part of pension planning.

While I was a little surprised that collective defined contribution schemes were being introduced at this time, it certainly increases options for employers. The best way to look at CDCs is as a halfway house between a defined benefit scheme and a defined contribution scheme.

From an employer’s perspective, there is a known cost, just as with defined contributions. From an employee’s point of view, there is a target for what he or she will receive on retirement – but note it is a target and not a guarantee. In retirement the CDC’s actuaries – yes, we still need actuaries – declare the pension payment for each year.