The pensions industry has welcomed the appointment of former Liberal Democrat pensions spokesman Steve Webb as pensions minister in the coalition Government alth-ough there is concern about his view on higher-rate pension tax relief.
Webb returned to the work and pensions brief for the LibDems in January 2009 after impressing many in the industry as previous holder of the post between 2001 and 2005.
Over the years, Webb has championed the idea of a cit-izens’ pension, offering a higher basic state pension around the level of the pensions credit to everyone meeting a residency criteria.
The LibDems rolled back from a commitment to a citizens’ pension in its recent manifesto due to the current economic climate but this remains a long-term goal.
In a recent article for Money Marketing, Webb expressed general support for the idea of the National Employment Savings Trust, labelling it a “welcome step towards tackling apathy at the lower end of the income spectrum”.
But he warned that the scheme would fail if concerns regarding means-testing were not addressed.
He said: “Real concern remains about the impact of mass means-testing of pensioners on incentives to save in Nest. The Government has tried to park this issue but it will not go away.
“The challenge of building confidence that it will pay to save in Nest is pervasive. It will have to be addressed before 2012 if the launch of personal accounts is not to be undermined by doubts – ill-informed or not – about whether it will be worthwhile saving.”
Webb has also called for the open market option to be made the default and has advocated early access to pension savings.
LibDem plans to axe higher-rate pension tax relief did not make it into the coalition agreement. Legal &; General wealth policy director Adrian Boulding is confident this policy will be derailed by the Conservatives, who criticised former Chancellor Alistair Darling’s move to restrict tax relief on pensions to higher earners last year.
He says: “Scrapping higher-rate tax relief could be very damaging. That is a LibDem policy and we now have a Conservative-LibDem coalition, which so far has been silent on this.
“High-income individuals have shied away from pension contributions last year. If we had an extension to all higher-rate taxpayers, we would see a marked reduction in pension savings for that group as well. I draw some comfort from the fact that it was not in the coalition statement.”
But Boulding hopes that many of the Liberal Democrat’s other policies will make the cut, particularly the citizens’ pension.
He says: “I hope we see a long-term goal of a citizens’ pension being outlined with some path being mapped as to how long it would take to get there. That would give people starting to save in 2012 the confidence that in due course means-testing will be got rid of, so it will pay to save. I do not think that it will be in next month’s Budget but I think before 2012 we should see steps outlined.”
The Conservatives promised a “quick and dirty” review of Nest and while it was not mentioned in the coalition deal, Boulding believes it will be inevitable due to concerns from both parties.
He says: “The contract Ang-ela Eagle signed took Tata’s funding through to October. Now Steve Webb is going to have a new contract to sign, which will take Tata from October onwards and will account for most of the cash.
“He has a big decision to make so I think they will carry on with the quick and dirty review as promised.”