There are very few who could say that Steve Webb has not had a major impact on the pensions scene.
Since he took over as Pensions Minister in 2010, he has overseen some very far reaching changes in pension policy and practice, not least the plans for a new single tier state pension and the successful start-up of auto-enrolment.
As most of us recognised at an early stage he was and is very different from his predecessors in that he actually understands pensions and how they operate.
As such he has been able to put his own stamp on policy decisions and advise his officials in DWP as to the direction he wants legislative changes to go – rather than, as I suspect may have been the case previously, the other way round.
Not all of his actions have, of course, found universal approval across the industry, pot follows member for example, and there are still more changes and innovations – some of them fairly controversial – that Webb has signalled his intention to bring to fruition before the general election in May next year.
These include, in particular, a need to determine a (hopefully) well-judged charge cap on auto-enrolment schemes and, in conjunction with the FCA, reform of the regulations on the sale of annuities.
The Minister has also said that he wants Dutch-style collective defined contribution in the UK as part of his ideas for reshaping the pension market and securing better outcomes for pension savers.
Legislation will almost certainly be needed to allow these types of schemes to operate freely but if this proves to be Webb’s swan song then this could yet another feather in his cap – possibly his biggest achievement of all.
By sharing risks amongst savers, keeping investments invested for longer and offering a retirement income straight from the investments, CDC schemes, where implemented, could cut out the annuity process altogether.
Given the current perceived problems in the annuity market, providing a more direct decumulation route for hard pressed savers is especially tempting.
CDC also offers the prospect of lower charges and according to the Institute for Public Policy Research an overall average pension income that might be as much a third higher than traditional DC pensions.
That is surely something worth pursuing and we should at the very least welcome the DWP’s commitment to less prescriptive legislation on pension scheme design and greater flexibility for sponsors and industry groups as a whole in the future – whether they voluntarily take up CDC or not.
As several influential commentators have observed, the minister deserves much credit for thinking imaginatively about what is one of the most critical long term issues of our time – how to encourage meaningful pension saving in the face of an ageing population and a growing savings gap.
The current pensions system is not totally “broken” as some would have us believe but it is in need of some further TLC if public confidence is to be restored and the many naysayers are to be silenced.
Initiatives that put the consumer at the heart of the process and aim to ensure that pension schemes – of all types – deliver the best possible outcomes for their members are positives that we should all cherish and look to support to the maximum extent possible.
Malcolm McLean is a consultant at Barnett Waddingham