New pensions minister Steve Webb on auto-enrolment, a new Pensions Act and why regulation "isn't evil".
Q: You’ve already stated in the coalition document that auto-enrolment will go ahead, but the future of NEST seems less certain. Will the coalition proceed with NEST?
STEVE WEBB: This is the ‘making auto-enrolment work’ review, not the NEST review. So the commitment is there – we have a coalition programme for government and the very specific thing of auto-enrolment into workplace pensions is explicitly mentioned, so that’s a signal it’s taken very seriously.
I do not want to pre-empt the review in any direction. So, for example, as you know, NEST comes into being on 5 July, and what we could have said was: ‘we’ll put that on hold’. But we didn’t want to do that, because we might as well have just said we’re giving up. On the other hand, if we’re having balloons and streamers and street parties and so on that would have sent another signal.
What we wanted to do was let things roll on and give the review openness, because it seems to me that if we get this right we want it to be in situ for decades – although I know nothing in pensions ever quite manages to last that long.
But I’d far rather spend a few months just making sure that we’re absolutely convinced that we’ve got the logic right, we’ve got the scope right and then get on with it and sell it.
So what I’ve said to the review panel is: 'I want you to come back with something that’s absolutely intellectually coherent, that stands up, that we can take out and justify and defend and promote. And if that takes you three months, that’s fine'.
In terms of the remit, the question is are we auto-enrolling the right people in the right dimensions? And, having decided the relevant scope of auto-enrolment, does NEST give us what we need? Is there a market solution?
I’m on record saying some of my concerns about exactly how it’s been done, but in principle they’re free to say ‘yep, the market's never going to deliver for this group, NEST as currently structured is the way to do it,’ then we’ll get on with it. It’s an open review – if they come back and say NEST is the answer we’ll go with it, if they come back and say there’s a better way, we’ll go with that.
So if the reviewers come back to you and say: 'the previous structure that Labour implemented was the right one,' you’re absolutely going to follow their recommendation?
SW: Well, we’re absolutely going to take what they say when we form our decision – in a sense, we haven’t sub-contracted the business of government, so ultimately we will be responsible for the decision. But clearly you don’t set up a review of good people who think something through carefully and then completely do the opposite.
If the clear message is the previous structure is fit for purpose and achieves what we want, we’ll go for it.
Q; If we can roll back a bit to the coalition agreement, there was a promise to simplify the rules and regulations around pensions and to encourage high-quality private provision, which I think is a sentiment that everyone in the industry is happy with. What sort of simplification are you looking at, and how do you hope to achieve it?
SW: We’re very much in the early days on that one. I think this department is taking a much tougher look at regulations than in the past – I’m a member of the cabinet regulatory review committee across the whole of government. I think there’s a higher threshold before new regulations can be brought in – I tend to find I’m meeting a lot more lawyers than I’ve ever met in my life.
You do find quite often there’s a court case or something like that that creates some ambiguity in the law and you just have to clean things up.
Regulation per se isn’t evil – in some cases regulation clarifies things and gives people certainty – but one of the things that strikes me is that we need to always be looking to the future.
If we think we’re increasingly moving to a DC world, we’ve got to make sure we’ve got a regulatory regime that is fit for purpose and that hasn’t still essentially got a different mindset. Is there a list of 20 regulations I’m going to scrap? No – but we’re actively looking at anything that will allow people to provide better workplace provision.
SPC president Kevin Le Grand has been a vocal advocate of risk-sharing. How do you feel about risk-sharing? Do you have any plans to encourage this in the workplace?
SW: I’m always wary of being overly prescriptive when it comes to benefit structures. The idea that I can sit here and say, “this is the kind of pattern of benefits I’d like to see” doesn’t seem to be my role. Clearly, if employers’ want to provide schemes that don’t wholly put the risk on the employees then we don’t want to make that difficult. But we haven’t set up a blueprint for the regulation of hybrid schemes or anything like that.
In the coalition agreement, the government said it would make fair and transparent payments to Equitable Life members. When is this likely to happen?
SWI think the important thing to say about Equitable is the difference between the coalition's view on the ombudsman's report and the previous government's view is that the coalition accepts the thrust of what the ombudsman had to say.
I think the ombudsman objected to the previous administration picking and choosing from her findings. We said we accept the report, and now it’s a question of looking at other spending commitments as well, what can be afforded for Equitable and then what is a fair way of allocating that pot. That’s the process that’s going on now.
You’ve always been very much behind the idea of early access as something that will promote saving in this country. Is it something you’re looking to implement in the near future?
SW: It’s something where we would share responsibility with the Treasury, because clearly there are tax implications. It’s something we would work jointly on. But philosophically I’m in favour of it – it’s your money. Yes the taxpayer gives you tax relief, but essentially it’s your money.
While there is a case for saying tie the money up – there are a set of people who want their money tied up – there are another set of people who want flexibility. I view this partly though the auto-enrolment lens – is an auto-enrolled pension going to be more attractive if it doesn’t feel quite so all or nothing? People will say, ‘I’ve got family responsibilities, I’m in my 30s or 40s’. At that point do people want to tie their money up for what seems like forever? Or do they want something that in principle if everything goes smoothly in life allows them to save, but with a bit of a safety valve if they need it?
But it’s quite involved, there are a lot of different models, so I don’t think this is the kind of thing we can just roll out tomorrow. This has got to be thought through carefully and jointly with the Treasury. But it’s very much still on the agenda.
Do you still think the 25% figure would be about right?
SW: That has the merit in that it chimes with something already in the system – but there are other models. We’re looking at a variety of options.
You mentioned linking early access to auto-enrolment. Michael Johnson recommended bringing ISAs into auto-enrolment and, ultimately, into NEST. What’s your view on his proposal?
SW: I think some of the things Michael’s saying are similar to some of the things we’re talking about. He seems to be sympathetic to simplification and so on. But clearly an ISA is a very different product to a pension, and whether the two can be made to mesh, I’m not sure. But that won’t be down to me.
We’re working with the Treasury trying to make sure the pensions bits we’re each responsible for are working in the same direction, as you’d expect. But we’re actively doing that.
The Treasury are very keen on the whole concept of a savings culture more broadly – the feeling is we’ve had an unsustainable consumer boom, runaway house prices, public sector debt running into trillions, and we need to do things differently and get the debt down. It’s all of a piece really and we see auto-enrolment as part of that.
How’s your relationship been with the Treasury so far?
SW: It’s been good, actually. I think having a new administration coming in wanting to achieve things and perhaps a little bit less interested in process and more in outcome means we’ve had some good early conversations and we’re looking to work together. What we want to do is make sure we’re working jointly, with a common agenda.
What about the reforms around higher rate tax relief announced in the Budget?
SW: I think what the Treasury has done is exactly right. I think it was wise by listening to the industry. I’ve said on the record that the previous way of doing it was a dog’s breakfast and I stand by that. It’s almost like the previous government took the higher rate relief restriction stuff we had in the Lib Dem manifesto and did it badly. If you wanted to give a good idea a bad name, that’s how you do it. I think the Treasury idea of a cap – and obviously they’ll discuss the level of that – is a much cleaner way of doing that.
Turning to a more technical question, GMP equalisation has left trustees with a massive headache. Will you be tackling this issue?
SW: We’re due to have a meeting this week with officials – it is one thing we’re working our way through mentally. I must admit I’ll need a wet towel over my head for that. But we’re working that one through internally. I think it’s premature really to speculate whether we will consult or produce guidance on this – I’m still trying to get my head round it. I’m sure my officials are on top of it, but I’m not.
Another issue that’s caused some concern for trustees is scheme surpluses. There seems to be an anomaly in The Pensions Act 2004, meaning trustees of DB schemes are required to pass a resolution before 6 April or the sponsor will lose the ability to receive a refund of any future surplus. Would you be minded to amend the Act?
SW: It is something we are looking at – we’re aware of the concerns. As far as I’m aware, correspondence is going backwards and forwards with officials on this one, and I’ve got a meeting coming up with pensions lawyers in the next couple of weeks.
In terms of any primary legislation, we’ll have a Pensions Act next year which mainly will be thinking about what we have to do on state pension age 66 and the earnings link and so on, but I suspect that would be an opportunity to do any other things we needed to do.
Steve Webb was talking to Professional Pensions' Tom Selby
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