PensionsMay 22 2015

Pensions ministerial changes

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Pensions ministerial changes

But after five years of unprecedented change in the pensions industry, has Mr Webb left a lasting positive legacy, and what should we expect from an entirely Conservative administration?

It is easy to forget now, but before Mr Webb became pensions minister five years ago, the role had been filled by a merry-go-round of MPs who had little understanding of the industry, little interest in staying for long in the role and, therefore, made little impact. In 13 years in government Labour had worked its way through 15 pairings of pensions minister and work and pensions secretary since coming to power in 1997. Remember Angela Eagle or James Purnell? No? Not surprising – they probably don’t remember much about being pensions minister either.

Steve Webb’s long held interest in retirement, evident from the Liberal Democrats’ own pre-coalition manifesto pledges to reform tax relief and introduce a flat-rate basic state pension, was a breath of fresh air. His consistent commitment to reform was responsible for two key long-lasting changes which he was responsible for implementing: auto-enrolment and the simplification of the state pensions system. Although the latter will take time to work through, it was – for once – a genuine simplification reinforced by the famous ‘triple lock’ guaranteeing an inflation-linked uplift.

One tier

The Conservatives have promised to follow through with his single-tier state pension system – no-one is ever shy of assuming ownership of a good idea. And while the auto-enrolment project was a cross-party initiative, Mr Webb’s successful management of its roll-out should not be underestimated.

Only a few years ago there were many pensions experts who feared that widespread failure at the Department for Work and Pensions (DWP) to understand key details could derail the project. Mr Webb was able to ensure that did not happen, at least not on his watch. And while the pensions freedoms initiative was largely a conservative plan, his unwavering support for it has helped many dubious professionals to overcome their initial skepticism.

But, overall, has it been a benefit to have a dedicated pensions minister – or would we have been better off with a part-timer who didn’t really do anything? In October last year, the Institute of Directors (IoD) suggested that the post of pensions minister should be abolished in order to remove political intervention and give the industry a breather from the never-ending cycle of reforms and changes.

At the time, Mr Webb accused the IoD of simply being tired, pointing out that much more work was still needed. But with the pensions lawbook running into hundreds of pages, the case for ‘less is more’ has merit.

In addition, with his departure, a number of projects and ideas are left hanging. The proposal to allow annuitants to re-sell their annuity back to the market as an extension to the pensions freedom initiative is left without its champion.

This was one of the more complicated and controversial proposals to come out of the coalition’s pensions freedom project and may well now flounder without a dedicated expert to push it through.

Similarly, Mr Webb’s vision of ‘collective defined contribution’ schemes, combining elements of old fashioned final salary pensions with modern DC so that there is a more equitable sharing of risk, now looks unlikely to progress. Given the many technical and practical hurdles to both ideas it is quite possible that neither would have emerged even with Mr Webb remaining at the helm.

Sigh of relief

The IoD and others may breath a sigh of relief now that meddling Mr Webb is out of the way, but they can think again if they believe the majority Conservative government plans to leave pensions well alone. Among the Tory manifesto pledges are plans to raise the inheritance tax threshold for married couples and civil partners to £1m. How would this be paid for?

Easy – scrap higher rate pensions tax relief. That may not sound like the sort of pledge a Conservative campaign would make – and it may well be that it is one that gets quietly dropped by the wayside. Unfortunately it is a pledge common to almost all the parties’ manifestos, making it all too easy to pass even for a government with a tiny majority.

If only they still had ready access to a friendly face who knew how pensions work? Step forward Ros Altmann, already in place as business champion for older workers. Such expertise is on hand.

This may be vital should any problems crop up with projects already in motion; in particular auto-enrolment which is about to enter what could be its most challenging phase. Having taken on board all the large employers, the Pensions Regulator will be enforcing auto-enrolment on much smaller employers in the coming years – a catchment which is much more numerous, more difficult to reach and least equipped to cope.

With pensions freedoms and state pensions reform still in their infancy, a lack of dedicated expertise in the pension minister seat could be disastrous. Who better than Ros to take the chair?

Even with Ms Altmann in the hot seat, pensions advisers and providers will be praying for quiet; or at least for no more than a sober continuation out of the handful of initiatives that have already started. Having made a significant, and probably long-lasting, contribution in his time in office, Mr Webb’s departure should not be lamented for too long.

Job half finished

There is no doubt that he will feel the job of reform was only half done, but that half has been plenty. A period of calm reflection will be no bad thing. Pensions would probably still have been OK if Mr Webb’s replacement had been another temporary minister more interested in moving up the chain than spending too much time looking around and tinkering with what he or she finds.

Mr Webb was much needed to right a few wrongs of the past and set a straighter course for the future – but for the next few years let us sail unhindered onwards without any further changes in direction.

Bob Campion is head of institutional business at Charles Stanley Pan Asset Capital Management