The achievement may seem modest, but September 2013 marks 40 months since Steve Webb became pensions minister, a junior post within the UK’s Department for Work and Pensions, but one with far-reaching influence over the design, structure and, by extension, asset allocation of occupational pensions in UK.
Webb is already, by far, the longest-serving pensions minister since the post was created in the 1980s; the previous labour government, which reshuffled ministers on a near annual basis, largely used the position as a staging post for higher ministerial office. Given the complexity of pensions policy, incumbents had to spend several months just to master the brief, only to move on shortly after they had grasped it. Webb, by contrast, was previously the Liberal Democrat pensions spokesman, so had mastered the brief before he was appointed.
The minister now enjoys the respect and confidence of a large part of the UK occupational pensions industry. From flat-rate pensions, to defined ambition, DC account consolidation and DB funding, pensions policy under the coalition has been a mix of the visionary and the resolutely practical, even if not everything has worked.
Shortly after his appointment, Webb’s decision to allow private sector defined benefit schemes to index benefits against consumer price inflation, rather than the (usually higher) retail price inflation rate, proved controversial and much more complex to achieve than the minister had anticipated.
Also on the defined benefit side, the decision this year to change the statutory objective of The Pensions Regulator “to support scheme funding arrangements that are compatible with sustainable growth for the sponsoring employer” has been widely praised and gets to the nub of the DB funding dilemma.
If TPR is too demanding on employers in terms pension funding, more assets will be channelled away from productive investment in the real economy and more schemes could end up in the Pension Protection Fund (PPF). If it is too weak on scheme funding then it risks allowing schemes to remain structurally weak and a threat to the PPF in the event of sponsor insolvency.
At a time of anaemic economic recovery, getting this balance right is critical and the fact that this policy was announced in the 2013 budget indicates how seriously the government wants the industry to take it. Anything less than a statutory change might have been dismissed as lacking in serious intention.
But details are vague on what this policy means in practical terms, just as information is also sketchy on what TPR means when it advocates of “integrated risk management” in this year’s DB Funding Statement. The Dutch regulator exercised real pressure on pension funds to increase their risk management capabilities in the aftermath of the 2008 crash, which led to initiatives to improve pension fund governance and even to consolidation within the sector. But it is unlikely that TPR will take the same hands-on approach.
Webb’s rhetoric on ‘defined ambition’ pensions has been inspired by fact-finding visits to countries like Denmark and the Netherlands. But defined ambition looks like somewhere the industry might have gone if it had been implemented early in the last decade and the policy has been mostly talk, not least because the concept is so vague. No doubt, there will be a few takers, which will save ministerial and official face and Webb’s vision, at least, should be praised.
This autumn’s party conference season will focus attention on the next general election, less than two years away, and the current prime minister is reported to be already preparing for the eventuality of another Conservative-Liberal Democrat coalition. In that event, one of the most radical and welcome decisions would be to leave Webb in place to finish off some of what he has started.