His deep knowledge of the subject matter, analytical mind and willingness to engage with the industry set him apart from pretty much all of the predecessors that passed through the revolving door of his office in the years before him.
Yes there have been many successes – delivery of auto-enrolment, the triple lock and the cleaning up of much of the architecture around the distribution and sale of private pensions being three. But Webb has also had his wobbles.
He has pressed ahead with the pot-follows-member option in the face of much industry opposition and warnings of high costs and fraud risks.
He has also done little to clean up the way annuities are distributed. You could argue that this is an FCA issue, not a DWP one, but he opposed Labour’s original idea of a bare minimum of an annuity brokerage service for all – which pre-Budget 2014 would have clearly better than nothing – and was only a few months ago opposed to the second line of defence on accessing retirement income, arguing that he didn’t want a box-ticking approach getting in the way of people accessing their cash.
In his early years as a minister the DWP was so out of touch with the FSA it was hard to believe telecommunications between Whitehall and Docklands actually existed. Webb only expressed serious concern about consultancy charges five weeks before it was due to be implemented. With the industry having spent two years and lots of money preparing ways to implement the remuneration structure the FSA had told them to use, it then found the policy dumped within months of implementation.
The DWP has also been behind the curve on hidden transaction costs – those under the bonnet charges that do not appear within the annual management charge disclosed to the pension investor. In October 2013, Webb’s Coalition government defeated a Labour amendment calling for an investigation into transaction costs, only to see former chancellor Lord Lawson throw his weight behind the calls three months later, and resulting with a commitment to revisit the issue in the future.
One of Webb’s other big ideas, collective DC, may have made it to the statute book, and while I admire the aspirations of the project, I am yet to see any genuine widespread appetite amongst employers.
But the biggest issue I have with Webb’s tenure is his construction of a reform of state pension that transfers vast sums of money from the poorest future pensions to the richest. If there is a bigger theft from the poorest hard working individuals in the UK than the single tier pension policy, I would love to hear about it.
Just to be clear about this, the replacement of the combination of basic and state second pension with the combined single tier pension reduces the entitlement of every single worker who has been contracted in all their working life. Even those in their early 60s are worse off if they have always been contracted in.
It is a point Corporate Adviser has made on several occasions, yet nobody outside our community seems to understand. But it’s not that complicated, and the rollout of the policy is when we will see the penny drop.
By definition, those who have always been contracted in are largely made up of those with the very worst pension provision, the 10 million or so Britons with little or no pension provision beyond the state. In broad terms, these workers could have expected to get around £200 a week state pension, in some cases more, but will now be capped at around £150. That means millions of low and middle earning private sector workers will be thousands of pounds worse off in real terms as a result of the changes.
The winners from the changes are those with the very best pension provision – who have final salary pensions or with contracted out pots of up to £100,000 or even more if they are lucky. The generous state pension catch-up accrual rate they are being given means any of these well-pensioned happy folk with nine or more years to SPA will end up getting exactly the same state pension as those who trusted in the state to treat them right – and also get to keep their contracted out benefits as well, and even take them as cash at 55 if they want. Nice.
The irony of the great state pension robbery is that it is being introduced supposedly to help the very people it is treating so badly. We need auto-enrolment because Turner says lots of people have no pension. But we need to simplify the system to make it pay to save and so people understand what they have. So lets reduce by a quarter the state pension of the people who have nothing else, even though the auto-enrolment income they manage to build up – if they opt for such an old-fashioned thing as income with such a small pot – will never replace the state pension they will lose as a result of Webb’s flagship reform.
I have put this proposition to Webb on several occasions and his defence comes in three parts.
Firstly, if the contracting out deduction slate was not wiped clean, we could have people alive in 2090 still having to deal with the complexity of the old system. We need simplicity, he argues, if we are going to build a savings culture. But it is going to be decades before most people have full single-tier benefits, and it is hard to see how it can be right for millions of the poorest retirees to lose a quarter of their income just so that those with better pensions don’t have to do a bit of maths.
Secondly, he argues that 80 per cent of the population have some contracted out benefits anyway. I have two issues with this figure. Firstly, so what? The majority of that 20 per cent must sit squarely within the auto-enrolment target market – the people the Turner Commission was looking to help. Secondly, I reckon there must be an extremely long tail of people with just a few years of contracting out. So there must be a considerable cohort of losers with small contracted out benefits who have been relying on S2P.
His third argument comes in two ways – these benefits would never have been paid, he argues. Yet at the same time he says the policy is broadly cost-neutral in the early decades. If there is no net Treasury gain for years, then why do it if it causes so much pain? And even if there is a gain to be had for the Treasury, which as taxpayers we would all gain from to some extent, then don’t make the poorest retirees shoulder most of the burden.
I have been amazed by the lack of criticism of the policy – with a few notable exceptions. It is depressing to think that this is probably in part down to the fact that virtually all the stakeholders in the pensions, financial services and political spheres who shaped the policy are all contracted out. Why Labour has barely raised a whimper on the slashing of the state pension of the average worker is beyond me.
Hymans Robertson published some illuminating figures on the subject – showing that both Webb and prime minister David Cameron are about £50,000 better off as a result of the reform, whereas a striver of the same age on £15,000 a year who has worked all their life and has trusted in S2P is about £35,000 worse off.
Steve Webb has been a courteous, intelligent and engaging pension minister, who has always been prepared to engage with the industry and in particular the media, an openness from which I personally have benefited. From what I have seen of him, he appears a good, decent man, who has done his best in the circumstances he has been presented with, and has achieved many good things.
But his expertise has given him the confidence to open a can of worms that has proved uncontrollable. I can only assume the Treasury vetoed a fairer settlement, or that fear of public sector unions meant the contracted out had to win out.
