UK – Auto-escalation of pension contributions and a regulatory regime that encourages and enables risk-sharing are high on the agenda for the Department for Work & Pensions (DWP), according to UK pensions minister Steve Webb.
The Liberal Democrat minister, whose party is the junior partner in a coalition government, also told delegates at yesterday's Pensions Intelligence seminar hosted by Aberdeen Asset Management that he was trying to build "long-term consensus" across political parties on pension reform.
Discussing the recent launch of auto-enrolment for the country's largest employers, he said: "Our focus is on membership at the moment, but we are already starting to look at auto-escalation techniques."
He suggested that while many employees may be reluctant to pay more than the minimum contribution into a pension at time of enrolment, there was the possibility of individual agreements that would see part of future pay rises being earmarked for pension savings.
"People are far more willing to commute future increases – the increase is less than it would have been – than they are to take money out of their pay packet now," he noted.
Webb also once again highlighted his wish to see a greater level of risk-sharing between employees and employers and said the government's role was to create regulation that enabled and encouraged such a possibility, rather than come down on such concepts "like a ton of bricks".
"At the moment, if you as a firm want to offer a pension with a promise – a link to the salary that people used to earn, average salary or whatever it is – it is illegal to offer a pension with a promise, unless it is an index-linked promise," he said. "Why?"
He added: "In a world where we have abolished contracting out, so anything a firm provides is additional to what the state does rather than instead of it, why should we ban firms from offering pensions related to salary, with no guarantee of inflation protection? Why is that such an evil thing to do?"
He said the DWP's forthcoming consultation on re-invigorating the pensions market would look at a number of options, and that these would include models where "we pool risk and offer that as part of the package".
Webb previously indicated that the consultation paper would include proposals for a defined benefit fund that would be converted into a defined contribution (DC) pot beyond employment, as well as the possibility of a levy on DC funds that could be used to smooth investment returns.
The minister also repeatedly referenced the importance of cross-party agreement to pension reform, mentioning the Turner consensus that resulted in the eventual launch of the National Employment Savings Trust and introduction of auto-enrolment.
In a white paper published by Aberdeen to accompany the conference – '250 expert voices: the future of UK Pensions' – respondents argued in favour of such long-term thinking.
"The respondents in this research are clear on their need for a longer-term perspective to be taken by successive governments, perhaps in the form of a cross-party agreement on pensions."
"Above all," the paper added, "[respondents] want a period of stability to allow current schemes and initiatives time to work through with no additional changes."
Webb argued that most of what he had discussed over the course of his speech would not be out of place within a future government, or even as part of a different party's pension policy.
"What we are trying to do is build a long-term consensus of just the sort that you seek," he said.
He noted that while some might be unsure about implementing his risk-sharing proposals if regulation were only to be changed once again by a successor, he would protect against such changes with a "firewall".
"What we are looking at is whether there can be some kind of regulatory brake or firewall," he said, explaining that, in case of significant regulatory amendments, employers would be "off the hook" and insulated against such change.