UK minister dismisses ‘auto-protection’ as politicians clash on paternalism
The UK pensions minister, Steve Webb, has dismissed a recent think-tank proposal to implement a default retirement system for defined contribution (DC) pension savers to counter Budget freedoms.
Webb, a Liberal Democrat MP, said he did not believe savers approaching retirement needed such a level of paternalism or government intervention and dismissed claims the Budget proposals were at odds with auto-enrolment.
The traditionally right-leaning and free-market think-tank, the Centre for Policy Studies (CPS), said government intervention into the pensions market was the best way to ensure savers did not make poor retirement decisions.
The paper, authored by CPS fellow Michael Johnson, said the default annuity process would ensure that those left confused would still receive a stable retirement income, allowing those who desire additional freedoms to access them as well.
Conservative Party peer Lord Holmes and the UK union umbrella group Trade Unions Congress supported the proposals.
Speaking at a debate hosted by the Society for Pensions Professionals (SPP), Webb said he was prepared to be paternalistic for those who needed help in order to save into a pension.
“Once they have got close to the concept of a retirement, do we have to go on being paternalistic at that point?” he asked.
“There is no inconsistency between helping people do something [the government thinks is right] they would not otherwise do – like building up pension savings – and then recognising that everyone is different and people should be free to do what they like with [their pension].
“Michael Johnson is nothing if not prolific in his ideas, but, just at the point we had decided defaulting into annuities is not the best thing to do, [the CPS] publish a paper on defaulting into index-linked annuities.”
The Budget proposals, which come into effect on 6 April, remove the requirement for DC members to annuitise, allowing them to draw down in any way they see fit.
It was announced by chancellor George Osborne in 2014 after the annuity insurance market faced sharp criticism over perceived lack of value for money and market failure.
“Talk about not getting the zeitgeist,” Webb said, in a nod to the CPS.
Webb said the concept of defaulting people’s DC pots into index-linked annuities was bizarre given that many UK savers retiring now would have state pension entitlements alongside some defined benefit pension payment.
“If ever there were a wrong moment to come up with a suggestion, this was it,” he said.
Webb shared a stage with Labour counterpart Gregg McClymont, the shadow pensions minister, as the pair clashed over the Budget proposals and the safeguards in place for consumers.
McClymont said the paper was interesting given that the logic behind the Budget rules “strays” so far away from that of auto-enrolment.
“This [CPS] proposal is more in-tune and is something I will be following closely,” he said.
“I don’t agree with all of it, and, as always, there are some points of contention. [But] I think it is definitely a worthy contribution to the debate.”
McClymont expressed surprise at the policy being suggested by the CPS, a free-market advocate, but said the merging of right and left political ideology had become more common over his tenure as shadow.
“It is recognition that the pensions market is a special case,” he said.