With just months to go before the general election pensions minister Steve Webb shows no sign of slowing down. Helen Morrissey spoke to him about his plans for the future.
The pensions industry has gone through plenty of changes in the four-and-a-half years since the coalition government came to power. But it would seem that pensions minister Steve Webb is not finished yet.
Speaking at the NAPF Annual Conference in Liverpool, he outlined a programme of reform and ideas that in effect runs way past next year's general election. Such an idea is hardly music to the ears of an industry already struggling to cope with an onslaught of change.
Webb responded to industry pleas for more information on how to implement the flexibilities announced in the Budget due to come in April 2015 by saying more information would be available soon.
"We are working hell for leather on getting more clarity on these changes," he said. "It is a big priority for the Chancellor and myself, but we have to focus on getting the legislation in place. As soon as we can tell people more. then we will. But we understand the industry has a lot to get through."
However, while saying this he also announced the publication of draft regulations introducing minimum governance standards for workplace schemes as well as the defined contribution (DC) charge cap.
"People have said that we have published the command paper now, so maybe the charge cap should be put back. But my answer to that is 'No, no, no'.
"The charge cap is the first step in our war on charges. We have the charge cap of 0.75% from April 2015, followed by the banning of active member discounts and commission from April 2016.
"This is progressive action aimed at bringing value for money, and we will be looking at whether transaction costs should be included in the charge cap in future."
Webb described transaction costs as being "the murky secret at the back of the cupboard" and said that responsibilities being placed on trustees from April will empower trustees to ask "the awkward questions" about what is happening to members' money and the charges levied upon it.
"Not everyone will be up to the job. But some will be."
Raising the stakes
The general election may be mere months away, but this has not prevented Webb from outlining his vision for pension reform for the coming five years. While auto-enrolment has been largely a success, he says there is more that needs to be done – most notably raising minimum contribution levels.
"Eight per cent is not enough – we need to get beyond this. I would say the case for compulsion was stronger, say, two years ago. But given that we have 90% of the auto-enrolment population participating voluntarily, I don't think it is the right way to go. We should not look to force those who have decided to opt out to save into a pension."
He believes default auto-escalation will be the best way of raising contribution rates whereby extra contributions are made automatically with every pay rise.
"This is probably the best answer for the '8% is not enough'. We've managed to get everyone in to a pension. Now we need to get everyone's contributions up."
Perhaps the most interesting of Webb's future plans concerns the annuity market. The last Budget opened up the retirement income market with people given the ability to take their pensions as a lump sum, while the income drawdown market was extended to those with smaller pension funds.
However, Webb announced his wish to help those who have already purchased an annuity to effectively unwind it and receive a lump sum.
"We've had feedback from people who have said 'Well, I bought an annuity and I'm going to live for 30 years – is that it?' Some people did not shop around and may not have got the best deal, so are we going to write them off?
"We certainly can't do anything about this before April, but I think it is something that should be included in a Liberal Democrat manifesto. It is about the concept of fair value and if people can swap out their annuity for a capital sum, they might prefer to do that?
"It could be helpful for those who have a small pension pot for whom a small income may not be a game changer, but a capital sum might be. Of course, it would all be about the price they receive and they might find that they don't get as much as they might have thought. But it is an option."
When asked whether such a policy might only be used for those who purchased an annuity immediately prior to the Budget, Webb said he was keen to widen it out if possible.
"There are issues regarding sales of assets and the effect on gilt markets, for instance. But I would not want to restrict it. People may have a need for capital at different points in the retirement."
The road to reform
So what impact does Webb feel his reforms will have? What will retirement look in 30 years' time? As many people retiring today continue to retire with an element of defined benefit provision, will the lot of those retiring with largely defined contribution pensions be any better?
"My goal is to keep the smiles on people's faces. We were at a point where we saw pension fund participation declining, whereas now unless they have actively opted out then people will have a DC pension – meaning that once they get to the point of retiring, they have a pot of money and they have options as to what they can do with it."
And so after a busy four-and-a-half years as pension minister, is there anything that Webb would have done differently?
"My only regret is not starting this process sooner. We have also had to bring in these changes during a time of austerity, whereas I would have loved to have started doing this ten years ago when we still had pension surpluses.
"Given the choice, I would have also have liked to increase the state pension age a little more slowly than we have."
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