Hard won and easily lost, credibility is an asset that all government ministers covet. Without it, they find themselves defenceless as confidence drains away. This is the danger Steve Webb now faces.
When the government announced the move to a flat rate state pension reform many in the pensions world cheered. A simplified state pension system is widely recognised as a necessary step to making the new workplace pensions pay for lower earners.
Concerns were expressed by Labour about the hard, fast, rapid wind-up of the second state pension but the pensions minister’s assurances that the new workplace pensions would prove an adequate replacement for the second state pension carried the day.
Specifically, the government insisted that its rapid transition to a flat rate state pension would be mirrored by equally rapid action to ensure that those who were saving into the second state pension system immediately got value for money from their new workplace pensions.
The minister was very clear. He staked his hard-won credibility on building ‘quality’ into the new workplace pensions system.
‘A full frontal assault’ on pension charges was promised which would include a cap on charges – to say nothing of his TV statement that ‘excess profits’ were being made on annuities by insurers.
Remember why this all matters so much. Millions of people are being introduced to workplace pensions savings for the first time. Ensuring they stay enrolled over the long term is crucial if our savings rate is to rise. Nothing is more certain to encourage flight from the new pensions than lack of value for money both in building up pension pots and in turning that pension pot into an annuity retirement income.
This is why Labour has mounted a relentless campaign for low charges and high quality. As Ed Miliband said launching the campaign in July 2012 this issue is too important to ignore. Even on the government’s own figures people can lose up to £230,000 from their lifetime savings because of excessive fees and charges.
And Labour’s plans are clear. Savers must know their interests are being protected as their pension pot passes through the hands of the numerous investment industry middlemen each taking a cut. Thus the starting point of reform must be independent trustee-based oversight and governance of pension schemes in the savers’ interest. To accompany this and provide trustees with the tools they need Labour would as part of a coherent reset of the pension market implement a meaningful pensions charge cap, legislate for full disclosure of costs and charges, free up the high-quality public option NEST pensions, and provide regulators with the power to ensure economies of scale are achieved in pension schemes. And because building our pension pots up efficiently must be matched by the efficient turning of the pot into a retirement income Labour would insist on independent annuity brokerage to help savers to get a better deal in the current annuities market.
The hard, fast, wind-up of the second state pension is on the way. By 2017, 10 million new pension savers are likely to have been automatically enrolled in the new workplace pensions. That makes pensions more political than it ever has been before. These new savers will demand that a government which insisted they enrol ensure value for money. The clock is ticking and while the government talks the talk it has not walked the walk. The credibility gap is yawning.
The charge cap which Webb promised in a blaze of autumn publicity, in response to a Labour campaign begun by Ed Miliband in July 2012, is nowhere to be seen, despite promises. Even if it does finally appear one can bet it will be hedged around with all kinds of concessions to vested interests.
Likewise reform of the broken annuities market, so urgent given the impact of annuities on the lives of pensioners, but absent entirely from then pensions bill. Indeed, the government literally has no policy to end the rip-offs in annuities which mean pensioners can lose thousands of pounds a year from their retirement income – every year for the rest of their lives.
When the OFT – a government competition body – says that it cannot remember investigating a market where the consumer is less well represented and concludes that competition is not sufficient to deliver value for money, alarm bells ring. It means it is long past time for government to get a grip.
So even judged on his own terms Webb is in some difficulty. The minister was always clear that moving so rapidly to abolish the extra state pension meant equally rapid action to ensure quality in all new workplace pensions. But rhetoric has outpaced reality, to put it kindly. And when the gap between words and action becomes so wide people start to doubt the minister – which takes us right back to the matter of credibility. Hard won and easily lost. What happens to Webb’s pledge of a meaningful charge cap will tell part of the story, the absence of action pensioner annuity rip-offs another.
Gregg McClymont MP is shadow minister for pensions. He tweets @greggmcclymont
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