Steve Webb needs hard cash for his defined ambitions.

Steve Webb, our pensions minister, has been writing in the Daily Telegraph. Robert Winnett’s article commenting on Webb’s idea for “defined ambition” pensions has solicited over 300 comments surprising me not least by the on-line literacy of the Telegraph’s readership but also by the passionate distrust of middle England for more Government “meddling”.

As my firm has been finding out over the past six months, middle Britain is more than peeved, they are angry and their anger is matched only be a lack of understanding of what is going on. This has presented an opportunity for my colleagues to restore a certain amount of trust, if only by explaining the dynamics that have brought about the demise of the great British Final Salary Pension Scheme.

This final salary pension is of course not entirely dead. It is still affordable as a result of the wealth generated by and taxed on the private sector. Such pensions payable to those in the public sector are jolly annoying to the Telegraph readership (other than the civil servants who are remarkably sanguine about the Government’s climb down from its proposed pension reforms that might have done something about this “pension apartheid”).

That “pension apartheid” is a term coined by the IOD and promoted by David Cameron, suggests that there is a groundswell of resentment to this wealth transfer that extends beyond disgusted of Tonbridge Wells.

For Steve Webb to win over the Telegraph readership, the IOD and indeed those close to the unfortunately initialed David Cameron, he is going to have to offer some genuine help to the private sector.

It is not enough to promote ways of rearranging deck chairs on the Titanic. Unless the Treasury is prepared to stop raking off the tax on equity investments it has enjoyed since 1997 or assume some of the (longevity) risk it takes to pay public sector pensions for those in private pensions, Steve Webb’s ideas will be laughed out of court.

There are one or two minor amends that he can introduce to pensions legislation.

He can break the requirement of his department that private sector pensions be index-linked. This will give poorer but more affordable pensions – a marketing gimmick at best.

He can relax the solvency rules on private pensions (though this would almost certainly run foul of current EU solvency legislation).  And again this is no more than a rearrangement, not an improvement.

For Steve Webb’s Department of Work and Pensions to make a real contribution to private sector pensions it needs to either take more risk onto the UK balance sheet or reduce the taxes that require such high contributions from the sponsors of defined benefit pensions.

The money to do this could and should have been raised from a readjustment in public sector pension benefits. This money is not going to be forthcoming and so long as there is no money, it is difficult to understand how we can increase our ambition.

The British Public are really fed up with all the changes foistered upon their pensions. While some good work has been done in improving the state pensions and radical reforms are being introduced to include millions of the “pensions unwashed” through auto-enrolment, too little has been done to reduce public sector debt, increase the attraction of providing “certain” pensions in the private sector and change the perception of the pensions “industry” as out of touch with the mood and needs of the general public.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly and the Pension Plowman
This entry was posted in Financial Education, happiness, NEST, pensions and tagged , , , , , , , . Bookmark the permalink.

12 Responses to Steve Webb needs hard cash for his defined ambitions.

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