Pensions Talks Interview: Steve Webb, former pensions minister and partner at Lane Clark & Peacock

Former pensions minister and partner at LCP, Steve Webb gives SEC Newgate his thoughts and views on some of the key trends in the pensions industry, and what this means for the UK.

Given the current landscape, do you think there will be more political intervention in pensions? With a push to promote more investment in the UK, should the government be encouraging pensions schemes to invest in UK companies and infrastructure?

Over time I would expect a Labour government to be instinctively more interventionist than a Conservative one when it came to pensions.  Any incoming government will face the same constraints in terms of limits on its ability to raise taxes further and/or borrow more, so getting pension funds to help deliver government objectives will remain very attractive.  Many pension fund trustees would invest more in UK productive finance if some of the practical barriers were removed, and if attractive investment opportunities were available. But they will fiercely resist any attempt to mandate them to invest in a way that they may believe is not in the best interests of their members. A Labour government is likely to be very supportive of using the Pension Protection Fund (PPF) as a consolidator of smaller DB schemes, as the PPF’s investment mix is likely to be more in line with the Government’s wider objectives.

If Labour is elected, what would you like to be seen in their planned pensions review?

This review must be comprehensive and look at the system as a whole. The remit should include how pension tax relief contributes to the overall objectives of the system, and whether it could do so more effectively. In recent years in particular we have suffered from a series of somewhat ad hoc initiatives, all designed to give Chancellors things to announce in set-piece speeches or at major ‘fiscal events’.  The prize would be an over-arching vision of what the pension system is trying to achieve and a direction of travel for reform which then forms the basis for consistent policymaking over the coming years.   The top priority must surely be (in)adequacy of DC savings levels.

As DB pension surpluses continue to rise, what do you think is the best use for pension scheme surpluses?

A big challenge with DB surpluses is that there is something of a ‘lottery of scheme rules’ which means that every scheme may have its own particular rules about how surpluses can be used. There is a case for Government intervention to make things more consistent, and this in turn could help pave the way for trustees and corporates to have a common interest in generating surpluses.  This could potentially benefit existing DB members, the DC generation and the sponsoring employer. But we need measures to give trustees comfort that running on – and possibly taking more investment risk – can be done without prejudice to the security of member benefits. The idea of a Pension Protection Fund (PPF) ‘superlevy’, buying full insurance cover for member benefits, is an attractive one.

What do you think will be the major trends in the DB market for the remainder of the year? i.e. more market consolidation, more buyouts etc.

The buyout market will continue to be very buoyant, but there may be an element of ‘wait and see’ while a new government determines its approach.  In terms of endgame options, if the new government presses ahead with a legal framework for pension superfunds and the creation of a PPF ‘public sector consolidator’ vehicle, trustees and sponsors are likely to want to carefully study how these options compare with a presumption against buyout.

There is a growing need to address the problem of insufficient pension savings, the need to increase contributions is evident and to encourage more people to save for retirement. How can the next government help pension savers, and make retirement security a reality?

The main reform on the table is the outcome of the 2017 automatic enrolment review. This proposed starting pension saving at 18 rather than 22 and applying the mandatory 8% contribution from the first pound of earnings. These changes would be welcome and should be progressed, but do not go far enough. We urgently need to increase overall contribution rates, perhaps starting with gradually levelling up mandatory employer contributions so that both worker and firm are obliged to contribute at least 5% of pay.