Hallelujah. You can say what you like about the coalition but they have done more for pensions than Labour did during its 13 years in power.
Labour’s legacy was appalling – more than 20 ministers went through the revolving door at the pension office, it was little wonder that pension savings ground to halt. That was despite a grinning Tony Blair promising that he “will encourage saving for retirement” when he came to power in 1997.
Fortunately, the coalition has resulted in LibDem MP Steve Webb taking on the pension role. He is well versed in the subject, having been the party’s spokesman on pensions for several years and he is already making his mark.
Future generations could struggle to have a decent retirement. We know that finalsalary schemes have become untenable. Increasing longevity has played a huge part and with deficits making a massive dent in balance sheets, it makes business sense to kick these schemes into touch.
Within days, the coalition agreement set out the new Government’s stall by remarking that it wanted to simplify the rules relating to pensions to help “reinvigorate occupational pensions, encouraging companies to offer high-quality pensions to all employees”. It also said the coalition would work with business and the industry “to support auto enrolment”.
Webb made it abundantly clear in his years shadowing the pension brief that reforming the state pension was his primary concern. Get that wrong and any other pension reform could hit the buffers, he warned.
The issue of means-testing has long been one of Webb’s concerns. He and others have disputed the figures pushed by Labour suggesting that meanstesting would affect only the minority with a national pension scheme under its current structure.
It was one of Gordon Brown’s failings in the pension stakes – his steadfast refusal to climb down on the issue of means-testing. Yet Webb knows all too well that people with modest pensions could find that after years of saving all they had achieved through saving was to disqualify themselves from means-tested benefits. Only last year, he said: “The Government needs to make sure that it pays to save, otherwise large numbers of low-paid workers will see no point in being part of a pension scheme.”
He has wasted no time in putting his words into action.
He has moved to simplify the basic state pension and remove means-testing, which in turn has paved the way for the go-ahead for Nest. The absence of means-testing will mean that people will no longer be worried they could be saving for no reason, while raising the threshold for entry will cut 1.5 million of the lowest-paid out of the equation.
Critics of Nest are out in force. The fact that Tata was the only bidder for administering the scheme raised questions (by Webb no less) on whether it will be value for money. The fact that the scheme will be invested in low-risk assets at the start so as not to frighten people away should the stockmarket take a tumble is also a concern.
Some argue the contribution levels are still too low but that could be said for many DC schemes already up and running. Besides, there would be riots in the street if employees were asked to stump up more while employers are already concerned that their contribution could break their balance sheets.
But Britain needs to get people to get into the savings habit and we have wasted enough time discussing the matter. I agree the jury is still out on whether Nest will be the success we need it to be but at least Webb and the coalition have given it a better chance.
Paul Farrow is personal finance editor at the Telegraph Media GroupMoney Marketing