Conservative Shadow pensions minister Nigel Waterson is chewing at the bit to get into Government and start helping people save more for retirement and if the Tories win the election, pegged for May 6, the hotly anticipated review of the national employment savings trust is at the top of his to-do list.
Waterson wants to get to grips with the scheme’s set-up costs and run a fine-tooth comb through the £600m administration contract that the Government has signed with Tata Consultancy Services. The Tories will also look into why the Government is taking so long to implement Nest.
Waterson says: “We were very concerned about the substantial delays in implementation and we want to sit down with all concerned to try to find out why that should be and whether we can speed up the timetable.”
Waterson says the Tories’ review would not hold things up. He says: “The Government’s original intention was to sign the admin contract at the end of June but they have brought that forward dramatically. If the election is in early May, our review will not hold things up. We intend to have a quick internal review rather than some big independent review.”
He says the Tories have a plan B in their pockets, adding that he would not be afraid to scrap Nest if the review throws up serious issues.
He says: “We are signed up to having a cheap and easy pension saving vehicle for low and medium earners but we are not necessarily committed to this model. If it looks as though it will be too expensive or too cumbersome or if it is not going to work properly, then we are open to other models. We have always said we will go into the election with a Plan B in our back pockets. We really hope we will find everything is in order but we have been doing quite a bit of work on alternatives just in case. We do not want to inherit something that is doomed to fail.”
The Conservatives are committed to auto-enrolment however and say they will implement it as soon as possible if they win power. Waterson believes there are many responsible companies wanting to retain and attract good employees that would take this up.
He says: “Bringing forward auto-enrolment for existing schemes would be an early priority. People on the whole would be better off as employer contributions into existing schemes are generally higher than Nest. It also avoids the long gap in terms of getting Nest up and running. It is a win-win situation.”
Means-testing remains a problem for the Tories but Waterson expects the party to find a solution before auto-enrolment into Nest begins in late 2012.
Committed to scrapping compulsory annuitisation
He says: “This is a big issue for us although it is not something that can be solved overnight. We need access to the Government’s model before we make any decisions about how to tackle it. This will not come under the initial review but we would like to find a solution before people start being auto-enrolled.”
The Conservatives have committed to scrapping compulsory annuitisation. But Waterson says pensioners will not have total freedom over their assets as they will have to lock in enough income to ensure they stay off state benefits. This level will be fixed each year.
He says: “The only legitimate interest the state has is that people do not fall back on means-tested benefits having blown the lot. It will give some people at least more flexibility. But it will perhaps encourage more people to start saving because at that point they do not know what size of pot they will end up with.”
The way we see our job is to change or remove the rules that seem to be stopping some of these other options from blossoming
Waterson does not have a fixed timetable to scrap forced annuitisation but says this would be sooner rather than later. “We are looking at any tax implication with our Treasury colleagues but I think this would be in an early Finance Bill.”
Loosening up the regulation around risk-sharing to keep defined-benefit schemes alive is also firmly on Waterson’s agenda. He says: “We are doing a great deal of work on all sorts of deregulation of risk-sharing and hybrid schemes at the moment. The way we see our job is to change or remove the rules that seem to be stopping some of these other options from blossoming.”
He says a number of UK firms including Barclays have set up cash-balance schemes where members get a cash lump sum on retirement to buy an annuity. The amount is based on earnings but the firm offloads the longevity risk. The Tories want to make these schemes easier and cheaper for employers.
The party is also keen to pin down the cost of public sector pensions before making any changes but opposition leader David Cameron has committed to closing the MPs’ pension scheme and Waterson says this will be a priority if the party wins the election.
He says: “We need more transparency first so we are setting up an office of Budget responsibility who will find out the true cost of public sector pensions so we can set out the real figures involved. Our policy is not to do anything sudden but to work closely with all stakeholders including unions. David Cameron has said MPs will move to a defined-contribution arrangement and that will happen pretty shortly after the election. I am not sure that is the approach to take for the entire public sector but there is a recognition that whoever is in Government we cannot carry on as we are.”
Waterson says the restriction to tax relief on pension contributions for higher earners was a “very bad idea”. He adds that the alternative, supported almost unanimously by the industry, looks “sensible” but the decision lies with the Treasury.
He says: “This is not something we would have done, we think it is a bad idea. It is very obvious the Government did it to make a political trap for us. I have seen some of the paperwork on reducing the annual allowance and it looks quite sensible to me but it is a Treasury matter.”
Waterson is also exploring methods of early access to pension savings but insists this would be only “one weapon” in the Tories’ armoury.
The Conservatives are going to spend £50m a year on a nationwide advice service covering all aspects of finances, including pensions, but Waterson says there will be an additional Budget if they want to sell saving for retirement to the public.
He says: “It is our job to restore stability and confidence to the pensions system, which has been lacking in the last decade or so.”
- Urgent review of Nest
- Address means-testing concerns
- Reform public sector pensions
- Scrap forced annuitisation
- Encourage risk-sharing schemes
- Bring forward auto-enrolment