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Pensions compulsion would cause 'awful lot of trouble', Webb warns

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  • Pensions compulsion would cause 'awful lot of trouble', Webb warns

UK – Introducing compulsion before pension funds are "sorted" could cause "an awful lot of trouble", the UK pensions minister has said.

Steve Webb's comments came the day before delegates at the National Association of Pension Funds' (NAPF) annual conference were told by the former chair of Australia's pension association that the industry and NAPF should lead the argument in favour of compulsory pension saving.

Responding to an audience question at the conference last week about the introduction of compulsion, Webb said he was not in favour of any policy beyond auto-enrolment, as there were "a set of people" that should be allowed to opt out.

He stressed that this would only apply to a small amount of the population – but that for some, sufficient pension provision might already be in place, while others might simply be unable to afford the contribution.

However, Webb also conceded there were other concerns – both political and structural – that had convinced him that auto-enrolment was the better option for the UK.

He suggested that it would currently be a hard sell for a politician to introduce what could be perceived as a new tax at a time when 'pension' was still "a dirty word" in people's minds.
 
Addressing recent criticism that the Department for Work and Pensions' preferred method for consolidating small pension pots accrued in auto-enrolment would put members at risk of higher investment costs that could impact long-term outcomes, he suggested the state of funds was the problem, rather than the policy.

"If people are worried about transferring a £2,000 pension pot into a lousy auto-enrolment scheme, why the heck are we allowing firms to auto-enrol their entire workforce into a lousy auto-enrolment scheme?"

He said that if there were a problem with the transfer of pension pots, then there was a "much bigger" problem with auto-enrolment.

Webb argued that, if these problems could be addressed, then concerns recently voiced by critics including the NAPF could be allayed.

"Given everything [NAPF chief executive Joanne Segars] said, I've said about what we are enrolling people into, fine, the big low-cost schemes, great – but if we introduce compulsion now before we'd sorted the things people were being enrolled into, then we'd be in an awful lot of trouble."

However, the day after Webb's comments, an adviser to one of Australia's largest superannuation funds called on the UK industry to back compulsion going forward.

Lorraine Berends, a former board member and chair of Australian NAPF counterpart ASFA and now part of the AUD45bn (€36bn) QSuper's investment committee, said compulsion was better suited to an environment where members were unwilling to engage with investment decisions.

"The majority of our members do not want to be engaged," she told delegates. "They are not interested, they want us to look after them – we are trustees, they are putting their trust in us."

She added that while member engagement was an area QSuper put "a lot of work" into, it nonetheless suffered from the same problems related to members' lack of interest.

"I don't say we give up, but compulsion has to be the answer," she insisted. "Once you have compulsion, member engagement is just not as vital, and you can focus on other issues, as well as that."

Berends then attempted to rally the UK pension industry behind the idea of compulsion, which in the session prior had been voted as the most likely outcome thanks to an energetic presentation from Mercer's Emma Douglas.

"I suggest, humbly, to everyone, to the NAPF, that you put compulsion at the top of your lobby list," Berends said.

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