Steve Webb may not know much about politics – his website reveals he dropped the subject after just a year at university “because I wasn’t very good at it” – but he should at least know something about pensions.
After graduating in philosophy and economics from Oxford he worked for nine years at the Institute for Fiscal Studies, the non-party think-tank, with specialisms in poverty, taxes and benefits, including pensions. Then in 1999, following a stint as Professor of Social Policy at Bath University, he was appointed spokesman on work and pensions for the Liberal Democrats.
The Lib Dems have far-reaching goals for reforming the pensions system in the UK. They want a universal and more generous state pension; that does not penalise women or carers. Tthey want to restore confidence in employer-run pensionschemes and encourage more people to join these schemesm; and they want to give people much clearer incentives for saving so that it pays to put money into a pension scheme.
This is an ambitious agenda. But for Webb, most of the UK’s pensions problems (and its solutions) can be traced back to the state pension.
“Whether you look at public pensions or private pensions, the key is to sort out the state pension,” he says, sitting in his tiny attic office overlooking the House of Commons. “Unless you sort out the basic state pension you can’t sort out the incentives to save and you can’t tackle pensioner poverty.”
Core to the Lib Dems’ pensions reform is to increase the state pension and restore the link with earnings so that , eventually, no pensioner will need to rely on means-tested benefits. Currently the basic state pension is worthof just £82 a week to a single person is below the £109 weekly limit for means-tested benefits.
“Means-testing clearly misses the target,” Webb says. “There are over one and a half million pensioners living below the poverty line. The only guaranteed way to help them is to give them cash, not another marketing campaign or leaflet.”
Such an approach would be welcomed by financial advisers, many of whom are currently advising their urging clients not to put money into pensions because private pension income can eat into entitlements to means-tested benefits.
Webb says increasing the state pension to £109 a week would achieve the key aim of givinggive every worker in the UK an incentive to save for retirement. “We need to make the system so that for every £1 you save you are £1 better off,” he explains.
But giving every pensioner a state pension worth £109 a week is also expensive, with some . Some estimates putting the cost at this would cost the exchequer around £7bn a year. nnually. The Lib Dem solution therefore is to implement changes gradually. “That’s a long-term goal. With pensions you’ve got to know where you’re going,” Webb says. “We will start with the over-75s and take the state pension for these people to £109 a week”. This step alone, he estimates, will cost “the best part of £3bn” a year.
But Webb also wants to improve confidence in employer-run schemes and increase their membership of these schemes. He wants employees to be automatically opted into their employer’s scheme, although he wants employees tobut to retain the right not to join. their company’s pension.
As part of this, Webb would like to see the introduction of “some kind of kitemark” for occupational pension schemes, which . Any kitemark would need to could be updated regularly. and could be made obligatory for job advertisements, he saysSuch a move could reassure give employees reassurancethat their company’s scheme met certain quality standards. But these could be words that Webb comes to regret. In the late 1990s, the Labour government proposed a “quality in pensions” standard for occupational schemes. But the scheme It was later ditched as being unworkable.
The other side to raising confidence in employer-run pension schemes is to improve protections for employees when the ir employer company goes bust. Webb would like to see the government’s interim Financial Assistance Scheme , which offers some financial assistance to employees whose pensions are at risk following the collapse of their employer, to be brought in line with the more generous Pension Protection Fund.
Around 65,000 people are facing drastically reduced pensions under the government’s Financial Assistance Scheme. “Unless we improve this scheme, these 65,000 people will become like a nightmare salesforce for pensions,” Webb argues.
Webb believes “complexity and confidence are the big issues in pensions”. He argues pensions investment vehicles are needed that will lure scores of people who have turned their backs on pensions back into the discipline of saving.
He argues that National Savings Investments, the government fundraising agency, could play a bigger role in pension provision by offering low-cost pensions vehicles. “People are worried about being ripped off. They are worried about the company [still] being there [when they retire],” he explains. “They know National Savings is not looking to make a fast buck.”
These moves wouldare likely to be welcomed by voters. But Webb is also open when it comes to talking about less popular decisions. He forsees a pensions regime without Serps, the state-run second-tier pension. This could “potentially be abolished”, he says, although he stresses any existing Serps rights would be honoured.
He even tackles one the mostcontroversial current issue on pensions – of retirement age for the hundreds of thousands of people in local authority pension schemes. “I would not pretend that longer working lives will not have to be part of [the pensions solution],” he says. “It may be we need to get teachers to work for longer. But we will have to look at the nature of the jobs we are asking them to do.”
For many voters these are unappealing words. But as we live longer – and healthier – lives, they are words we are all likely to will have to get used to.
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