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Nic Cicutti: Reflecting on Steve Webb’s legacy

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Now that the general election dust is slowly beginning to settle, there is a departing minister whom I want, perhaps surprisingly, to pay tribute to – and another person I would like to welcome into her new role in Government.

The person I want to offer praise to is Steve Webb, who lost his north Bristol parliamentary seat to a Tory challenger last week.

Webb was, without doubt, the most engaged pensions minister since the post was first created shortly after Tony Blair’s 1997 election victory.

Before then, other ministers were allocated pensions as part of a broader welfare portfolio. Yet despite Blair’s decision to create a specific office to deal with pensions in 1998, it is easy to forget how disdainfully the role was treated by Labour in the 12 years before Webb took it on.

Starting with John Denham in 1998, who barely survived five months in office, and ending with Angela Eagle’s 11-month stint in the job, a total of 12 ministers were appointed between 1998 and 2010, one of them twice. None lasted more than two years, most far less time then that.

For a long while it seemed as if being pensions minister was a way of paying someone a large ministerial salary for a short period and not expecting much of them.

Often this was part of a sub-plot of musical chairs in which personal and political factions were rewarded – or penalised – for their loyalty to various key figures in the Labour Party, including Tony Blair, Gordon Brown and even, unbelievably, John Prescott.

If you appoint someone to that office for say, 15 months, you are clearly not requiring them to engage with the subject in any meaningful sense. You certainly are not expecting anyone to radically redraw the retirement map for the next 30 years. Unsurprisingly, none of Webb’s predecessors disappointed in that respect.

In complete contrast, Webb had a vision for pensions and retirement planning in the UK that far outstripped previous incumbents. He almost single-handedly elevated pensions into a subject that resonated with the general public, particularly the decision to allow retirees far greater access to cash in their savings pots.

Webb could be infuriatingly disingenuous. His comment about not being too bothered if the money liberated as a result of the government’s pension reforms were used to buy Lamborghinis was one such example.

A failure to join the dots of his reforms and come up with a more robust system of advice to newly-retired people than Pension Wise, which looks to be a recipe for disaster, is another.
Inevitably, there was also some ministerial grandstanding. For example, Webb’s announcement in March 2014 of an end to so-called “rip-off charges” and hidden costs for pensions, with the introduction of a 0.75 per cent price cap for default funds in qualifying occupational pension schemes. The new rules came into effect in April this year.

There were only two problems with such an announcement. The first was it was limited to default funds, most of which are run on a semi-passive basis anyway. If you are going to stick your money into what is to all intents and purposes a passive fund, Fidelity’s tracker, not to mention those from several other managers, charge half that amount.

The second point, as made by Hargreaves Lansdown’s pensions guru Tom McPhail, is the average charge for a workplace contract-based pension was then 0.84 per cent a year. So the government was only driving down the cost of pensions by less than 0.1 percentage point for a typical pension scheme.

Nor was Webb prepared to tackle the underlying issue of dormant pension schemes, both occupational and private ones, many of which charge far in excess of the rather pathetic price cap he announced last year. Tens of billions of pounds are held in such schemes and reform in this area is painfully slow.

Still, better Webb than most of the non-entities who preceded him. Finding a successor to him will be hard.

Which leads me to Ros Altmann, whose elevation to the Upper House and appointment as a prospective “consumer protection minister” was announced midway through the election campaign itself.

I am pleased for Ros, whom I greatly admire – although her subsequent breathless email to hundreds of financial journalists and other contacts telling us all how important it was to vote Conservative seemed a bit naïve. I am sure her enthusiasm for the Tories was genuine, it just reminded me of the Mrs Merton interview with Debbie McGee, wife of “millionaire Paul Daniels”.
Her appointment also reminds me of Gordon Brown’s so-called “government of all the talents” in 2007, in which he appointed former CBI chief Digby Jones as trade minister.

Years later, Jones wrote of his time in office: “The entire place was risk averse, so that the most common advice all too readily accepted by career politicians not wanting to blot their ministerial-progress copybook was to do nothing. And I never managed to change that.

“But what I hadn’t expected was the omnipotent suffocation by process and the obligatory emasculation of original thought and initiative. The governmental machine demanded complete obedience in a way which anyone outside the Westminster bubble wouldn’t have believed.”

I wish Ros well and hope she does not suffer the same fate.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

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

  1. Andy Robertson-Fox 14th May 2015 at 2:23 pm

    I am sure the inhabitants of Chidding Sodbury, Thornbury and Yate will be surprised that they actually live in a Bristol constituency!
    While longevity in the post may have had its advantages one of the chalices Webb failed throughout his period in office to embrace and whıch has outlasted him and the prevıous ıncumbents for over sixty years is the frozen state retirement pension policy. It is to hoped that Ros Altmann, who has long recognised the unfairness and injustice of this iniquitous legislation moves swiftly to repeal Section 20 of the Pension Act 2014, which, in the mid to longer term would benefit of the UK economy by £1.5bn to £2bn a year.

  2. You have got to be kidding!

    I would say he did more damage to company pension schemes than even Gordon Brown managed.
    He made rules without understanding the consequences. As a result of scrapping commission on GPP’s the knock on effect to give you actual examples.
    A 400+ employee scheme with a 0.45% AMC (below the 0.75%) set up on a commission basis which allowed advice / help to all employees at no extra cost to the company and employees resulted in a 95% take up, with more than 60% contributing more than the minimum required (because they had someone explaining it simply), with people coming up to retirement with fund values that meant they have good incomes in retirement. As a result of Steve Webb this is lost as the compnay dont want (cant afford) to pay fees. result advice is lost for all these employees and they dont get a cheaper contract.
    2 charities have been told that the reduction in AMC from 1% to 0.75% means the scheme is no longer profitable to the insurance company. So the insurance company is charging £1200 per annum to the charity to enable them to continue with the scheme or have the scheme withdrawn .

    He is driving hundreds of thousands of people into the default cheap fund on the basis, I assume, that in Steve Webbs mind cheapest is best. We all know top fund managers and/or a diversified approach (which commission allowed us the time to explain) will usually (and yes all the normal caveatts) over time produce a better outcome. How many IFA’s use the default pension fund for their own investments? So ‘forget’ about the impact of lower charges what about the impact of years of under performance to these pension funds. This decision alone will cost employees billions of pounds over time.

    Employers previously contributing more than the auto enrolment levels into pension schemes because of Steve Webb’s interference made it nigh on impossible for these schemes to embrace the auto enrolment new joiners. Auto enrolment was meant to mop up the millions not in a pension scheme. Not to water down / make more difficult the running of existing pension schemes.

    Steve Webb also hadnt the understanding to realise that by reducing the LTA from £1.5 million, to £1.25 million to £1 million is plainly madness! Result doctors, teachers, civil servants in Final salary schemes will be penalised for getting a pension of more than £50,000 per annum. Result they will retire early, or come out of the pension to avoid a 55% tax charge. This will destabilise the NHS pension scheme. As these people coming to the end of their careers are typically the higher contributers to the pensions (which supports the retired pensioners) as they are earning more so contributing more. result in 5 years a knackered NHS pension scheme amongst others. So well Done Steve Webb…..YOU MUST BE JOKING

  3. David Stoddart 14th May 2015 at 8:06 pm

    @ Andrew smith I find your comments interesting however i believe Steve Webb was spot on with most things and the opening up of people being able to take their benefits how they want is a good thing. I think it has made financial planners much more professional as they are more accountable for the advice they give. Why not cheaper funds – apparently in U.S. They use cheap passives more. How many active fund managers outperform the index over a long period?

    One thing Steve Webb didn’t do (however he may have come to it) is even up the db lifetime allowance calculation with money purchase lta calc. I think a pension of circa £28000 per annum which is subsidised by the UK tax payer is sufficient. If people want more let them pay their taxes. Let the gps come out of the schemes if they want to. I believe your view about the current gps funding the scheme is a very short term view.

    Commission on group schemes was totally not transparent. Individuals should be allowed to decide to pay for that advice if they want it not have to through commission even if they don’t want or need it. just imagine what the amc would have been on your 0.45% scheme if you hadn’t charged commission.

    Steve Webb top bloke and top pensions minister.

  4. Julian Stevens 15th May 2015 at 9:40 am

    I have it on good authority that the Treasury’s policy of allowing people to cash in their pension funds and benefits, which will generate lots of extra tax revenues, was formulated without consulting Webb. Furthermore, the element of such encashments which is assessable for tax is annualised, meaning that a crystallisation event of just £10,000 is taxable(at emergency rate) as if it were 1/12th of £75,000.

    Providers make no estimates as to how much of the £75,000 might fall within the recipient’s Personal Allowance and, above that, their basic rate income band, so they just deduct 40% at source. I’ve seen this methodology applied even under the old triviality commutation rules on a pension fund of barely £6,000 ~ the provider deducted 40% of £4,500, even though the policyholder had no taxable income at all in that particular year, and was unyieldingly insistent that that was the way they had to do it.

    An application can be made for a refund of the excess tax deducted but, for anyone who doesn’t routinely file a SA Tax Return, the process is such an obstacle course that most people eventually just give up and HMRC gets to keep the 40%. The first hurdle is to get to speak to someone at your local tax office, the second is to get put through to anyone who understands what you’re trying to accomplish and the third (assuming you manage to clear hurdles one and two) is actually to get the refund. Read http://www.thisismoney.co.uk/money/pensions/article-2966766/Savers-using-pension-freedom-warned-pay-emergency-tax.html.

    As has already been suggested, many people will rush to cash in their pension funds but find themselves receiving only 70% of them. Add to that the stipulation on the part of many providers that they won’t facilitate encashment without a signed statement from a regulated adviser that advice has been received (a statement that most advisers won’t provide unless they actually have given advice, for which a fee will be required) and it’s not hard to see this whole business as a prize mess.

  5. I played at Yate for Stonehouse FC in the Gloucestershire County League way back in 1983. It was a memorable match for one of the craziest own goals I ever saw (our left back from the half-way line!)

    I suspect Steve Webb will be remembered (in Yate and elsewhere) for his “own-goals”

    @Andy Robertson-Fox it’s “Chipping” not “Chidding” Sodbury

  6. Edward Gibson 15th May 2015 at 2:02 pm

    @Julian Stevens – a little unfair surely to blame Steve Webb for the way that the PAYE system works – pension income has always been taxed under the PAYE system, a system which is far bigger and wider than just pension withdrawals and it is this which leads to the M1 emergency code issue.

    @Andrew Smith – firstly most default funds will be diversified as generally they will be a Managed fund – asset diversification not fund diversification is the key – secondly if you are running around claiming to be able to pick top fund managers and thereby outperform then either you fly in the face of published research or are even better than Warren Buffet and good on you

  7. Andy Robertson-Fox 15th May 2015 at 4:46 pm

    Apologies to all those in Chipping Sodbury …better than calling it Sodding Chippbury, I suppose!

  8. Julian Stevens 18th May 2015 at 9:57 am

    I’m not blaming Webb for the way the PAYE system works. I’m just pointing it out. People expecting in any given tax year to earn, say, £25,000 will very probably assume that adding just £7,500 of tax assessable income to that figure will keep their total within the basic rate band and that they won’t get hit with a 40% tax deduction at source. But they will and they may well find it so maddeningly difficult to reclaim half of that deduction that they’ll eventually just give up.

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