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Malcolm McLean: Could collective DC be Webb’s biggest achievement?

Steve Webb’s desire to introduce a charge cap for auto-enrolment and encourage collective DC are driven by a desire to improve the pension provision of scheme members.

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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

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. DB schemes in the 80s and 90s used the cult of the equity to assume excess returns on assets notionally earmarked for pensioners to reduce funding. It was a fallacy which ran for a decade or two and will take three decades to unwind.

    The fundamental issues are no different today other than who pays. Companies had to fund model variations in the past. In the futre it will be individuals. This is poor economics and poor philosophy.

    Oh and by the way for it to work indivudals at retirement will have to take a lower pension from outset !

  2. The writer of this article is obviously a fan of Webb but not so the 4% of state pensioners who thought he was a man of his word. Webb signed the EDM supporting the ending of the frozen pension scandal when he was in the opposition. After the election the victims of this blatant discrimination thought they had at last a pension minister on their side, but his U turn on this injustice was breathtaking. This man has consistently ignored this minority and only speaks of it when challenged. ALL state pensioners made their contributions to the NI scheme under the same terms, ALL are entitled to their cost of living increases and to withhold those increases for the few is downright discrimination and theft. Webb knows this but does nothing about it. Then to cap it all Webb has included clause 20 in the new pensions bill so this anomaly will continue! A disgraceful way to treat vulnerable citizens of a once great country and this is Britain’s shame for all the world to see. If as Cameron has said recently Britain is a rich country and money is no object when it comes to the flood relief, and sends billions abroad in overseas ‘aid’ and the NI fund has a surplus of £20 billion (which incidentally belongs to the contributors) why is this disgraceful injustice still going on?

  3. Steven Webb is not to be trusted, in 2004 and 2007 he stated “All state retirement pensions in payment to pensioners living outside the United Kingdom shall be subject to annual uprating by the same percentage rate as is applied to such pensions payable to pensioners living in the United Kingdom.”

    Who said it: Steve Webb’s amendment to the 2004 Pension Bill
    and again in 2007
    “That this House notes with concern that 520,000 British pensioners living abroad have their pensions frozen in value and thus not increased when the pensions in the United Kingdom receive annual increases; believes the practice of freezing these pensions is wholly unfair, discriminatory and irrational especially when some pensioners living overseas do have their pensions increased annually; believes that all pensioners living abroad, many of whom have made lifelong mandatory payments to their state pensions, are deserving of this annual increase; and urges the Government to bring forward proposals to end the evident unfairness in the current arrangements.”

    Who said it: EDM 858 that Steve Webb signed in April 2007.
    Now that he is the pensions minister he has made an about turn. BE WARNED DO NOT TRUST THIS MAN

  4. Whilst I fully respect Malcolm McClean’s obvious superior knowledge of pensions and I see a comment by Norma Maloney that cannot be disputed which inevitably questions the honesty and integrity of Steve Webb. The financial situation of the UK in general may have changed over the years but the discrimination shown against a minority group of pensioners is the same and unforgivable. Discrimination then is still discrimination now
    If the country can give aid in billions, which is creditable when correctly used and not lining the pockets of foreign politicians but one only gives when one can afford to give. Handing over 55million GBP to the EU every day seems to be no problem for the government and it would take just 11 days at this rate to pay all frozen pensioners worldwide their righful paid for indexing. It is even there in the National Insurance fund surplus of 20 billion GBP.. You would be right if you said that this money is borrowed by the government but they have to pay interest on this loan and the interest would pay these pensioners twofold. An honest and truthful minister would go for pension parity worldwide as do other countries with similar pension schemes do but not this man ! Why ?

  5. I see nothing in Steve Webb’s achievements to date about which to eulogise. What about the Conservative party’s pre-election manifesto pledge to remedy the mess of the current pensions framework resulting from 25 years of prejudicial government meddling? What about the desperate need for root and branch reform of the retirement income market, primarily by removing the shackle of annuity rates? What about the restoration of valuable ancillary features such as Contributions Insurance and integral term life insurance? All studiously ignored. I don’t trust the man or his word at all.

  6. Andy Robertson-Fox 26th February 2014 at 2:44 pm

    When I read that “he actually understands pensions and how they operate” I couldn’t help but laugh.

    As Norma Maloney and George Morley have clearly pointed out he has no understanding of the pension scheme for which he is directly responsible – the State Retirement Pension Scheme. Having condemned the frozen pension policy as being irrational, illogical and, worse still, discriminatory he now not only condones it but is seeking to incorporate it in clause 20 of his Reform Bill disaster.

    Webb also claims that to uprate UK pensions in, for example, Australia would be to simply put money into the Australian economy. Utter rubbish. It would be to put money into the pockets of those who are entitled to it – the expat pensioner.
    Webb totally overlooks the fact Australia subsidises the UK by around GBP75 million a year to bring UK citizens above the poverty line. That is less than 25% of what is being denied and is rightfully due to expat pensioners who live there.

    Cameron told the world a few days ago that Britain is a wealthy country, Webb tells the frozen pensioner that, dispite it being discrimination, Britain cannot afford to look after its own.

    And this man, Mr. McLean, understands pensions? I think not and that the naysayers are saying “nay” with good reason.

  7. What has happened to my comment? I posted it two days ago and it was in no way offensive?

  8. The writer of this article is obviously a fan of Webb but most pensioners do not share this opinion. Especially the frozen 4% who have been let down yet again.
    Below is a letter written by Steve Webb when he was a member of the opposition one can assume two things from this, that not one word he wrote reflects his true feelings on this injustice so he was lying or he is a hypocrite…….

    I strongly agree that there is an issue of injustice surrounding frozen
    pensions, given that pensioners living abroad have paid taxes and national
    insurance for their pensions. Treating pensioners differently from those
    living in other overseas locations that have their pensions automatically
    up-rated on a reciprocal basis is increasingly out-dated.
    We therefore believe that the Government must meet groups representing
    pensioners affected by frozen pensions to discuss how a just system of
    pension provision can be secured for those who move overseas. During the
    2006 Pensions Bill the Liberal Democrats proposed an amendment which would
    ensure that expatriate pensions would be re-linked to prices and then to
    earnings when this reform was brought in for the domestic state pensions.
    You may also be interested to know that the Lib Dems recently opposed
    regulations which would allow the situation to continue for another year.

    Please be assured that this is an issue that my Liberal Democrat colleagues
    and I will continue to campaign on.

    He wrote this letter in 2008!
    Two years afterwards, Steve Webb was appointed Minister of State for
    Pensions. However, nothing changed.

    What has changed however is the admission from the DWP that reciprocal agreements are not needed to pay state pensioners the pension they have paid for.

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