Following the disastrous result for the Liberal Democrats in the General Election last week, several excellent MPs have lost their parliamentary seats, including the Pensions Minister Steve Webb. The fact that we are losing, arguably, the best minister to emerge from the coalition, is gloomy indeed. The reforms implemented by Steve Webb, the Minister for State Pensions, have made the current pensions system far fairer and have allowed people far more financial freedoms. Despite receiving over 18,000 votes, Webb lost his seat in Thornbury & Yate to Conservative candidate Luke Hall. In a recent message on Facebook, Webb thanked his supporters for their backing and expressed his gratitude at having the opportunity to serve 18 years in Parliament. One of the sad truths of the way we assemble governments in the UK is that elections sometimes result in worthy and dedicated ministers being cast out; Steve Webb is an example of this in action.
David Cameron recently announced that Ros Altmann, a high-profile campaigner on pensions issues has been appointed pensions minister. Altmann is a City banker by training and previously worked as a director of Saga. Whilst her appointment has been widely welcomed by the pensions industry, only time will tell whether Altmann will have the same impact on the pensions system as Webb did. During Webb’s time in the Department for Work and Pensions we have witnessed seismic change in the country’s pension system. Despite there being 10.3 million people over the age of 65 in the UK, a figure that has risen 80% since 1951, many of us are not saving enough money to see us through retirement. In order to address this fact the Department for Work and Pensions introduced auto-enrolment. Enrolling employees automatically into affordable and attractive workplace pensions may be a challenge of administration for employers, but auto-enrolment addresses a far greater problem. An ageing population means that more and more of us will be reliant for longer and longer on money saved from past employment. Therefore it is vital that employers honour the legal obligations inherent to auto-enrolment. If needed, there are many means by which employers can seek advice as to how to manage auto-enrolment and make the necessary payments.
Webb spearheaded several radical changes to pension policy. Now, those over 55 with a defined contribution (DC) pension policy are able to spend their pension pots should they wish to, rather than having to wait until their official retirement age. Although these new freedoms have led to concerns that many pensioners will blow their pension pots on “Lamborghinis”, it seems unlikely that those who have diligently saved their money in a pension fund would blow it all at once simply because they can. Indeed, research from Prudential Plc at the time the pension reforms were introduced suggested that only 2% of over 55s were thinking of making large purchases with their pension pots.
It is more likely that pensioners will chose one of the other available options and either take out a small amount of money from their pension each year or buy an annuity. These freedoms signified Webb’s faith in the ability of the UK population to act responsibly. This faith is rarely seen in government ministers. Rachel Reeves, the Labour Shadow Minister for Work and Pensions, expressed fears that some pensioners may be at risk of being ripped off by fraudsters or “forced to pay excessive fees”. And she warned that pension providers were unprepared for the bombardment of people asking for advice on what to do with their pensions. In contrast, when confronted with think-tank proposals to implement default retirement systems for DC pensions savers, Webb rejected them as unnecessary, adding that “There is no inconsistency between helping people do something they would not otherwise do – like building up pension savings – and then recognising that everyone is different and people should be free to do what they like with [their pension].”
Webb is also responsible for the newly implemented 0.75% cap on pension charges. This cap will end the over the top charges enforced by pension providers and initiate a ban to hidden costs. This will make a huge difference to the individual and the UK as a whole: an employee with a pension pot of £30, 000 could benefit by £1,600 with a saving scheme that charged 0.75% compared to one that charged 1.5%. In addition, the government estimates that an extra £195 million of pension contributions will turn into pension savings over the next 10 years. In summary, the benefits are clear: not only are employees automatically enrolled into pension schemes, but their money is protected from excessive charges, and finally, their pension is handed back to them to invest or save or spend upon their retirement.
It is evident that Webb was passionate about the importance of pensions. During his time in Parliament he certainly made a string of bold and decisive moves; but the reforms put in place clearly show that he understood the nuances of pension policy. Even though Webb is no longer the Minister for State and Pensions, he will be remembered as having an extremely positive impact on the UK pensions industry and is sure to be a very tough act for Altmann to follow.