Fortnightly financial five minutes #23 Steve Webb

Please tell us a little about your background, your previous role as Minister of State for Pensions and your current role.

After a spell working for a ‘think tank’ – the Institute for Fiscal Studies – and working as an academic, I was elected to Parliament in 1997 and served as an MP for 18 years. For the period 2010-15 I was the Pensions Minister in the Coalition Government, introducing the simplified new state pension system and overseeing the successful rollout of ‘automatic enrolment’ into workplace pensions. I’m delighted that since 2012 over ten million people have been enrolled into pensions by their employers, with very few exercising their right to opt out.

Since leaving Parliament I worked for four years for the Mutual insurer Royal London, focusing on workplace pensions and the financial advice market. Since 2020 I have worked for LCP, a firm of consulting actuaries who advise company pension schemes to help make sure they are funded in a way that ensures member pensions are paid. LCP also works in a broadening range of areas including health analytics, energy analytics and even analysing the football transfer market!

How do you reflect on ‘pensions freedoms’ and how things have evolved in the last few years?

I think it’s important to remember that until ‘pension freedoms’ were introduced in 2015, most people who reached retirement with a ‘Defined Contribution’ (DC) or ‘pot of money’ pension had to use that pot to buy an annuity or an income for life. Annuity rates at the time were very low and people felt they were getting poor value for money for their life savings.  Pension freedoms gave people the flexibility to take money out in full if they wished, but also to leave the money invested for longer and to only dip in when they needed to. Many people have benefited from this enhanced flexibility about how they use their retirement savings.

Overall, I remain convinced that Pension Freedoms were the right policy, but one big area that could have been handled better was the resultant flood of interest in people transferring out of their ‘final salary’ type pensions. This was not really foreseen and probably led to too many people making such a transfer.

What do you consider to be the 3 key issues in the pensions space currently?

On automatic enrolment we urgently need to build on the early success by getting a much higher level of contributions. The risk otherwise is that too many people who never had a final salary pension will reach pension age with an inadequate DC pension pot and will either have a poor retirement or will have to work on.

A second key issue that is ‘unfinished business’ from pension freedoms, is how we support people to get good outcomes not just at retirement but in the decades that follow. While being forced to buy an annuity at 65 may not have been good policy, annuities remain a valuable way of managing money when you don’t know how long you will live, and could be a good option in later retirement. But in my view, we can’t leave it until people are in their 80s before having a conversation about the role of annuities. I think we should ‘bake in’ the later-life switch to an annuity when people take out a post-retirement product in their 60s.

Finally, we could do with some stability and clarity when it comes to pensions and tax. The system of pensions tax relief is complex and confusing, and public policy in this area keeps changing direction. Perhaps the next government will take a calm long-term look at how pension tax relief works and come up with a more stable and lasting solution.

Can you share a couple of examples of interesting client questions you have received recently?

One of the pleasures of my role is hearing directly from the public with their pensions questions and writing a weekly column for ‘This is Money’ in response. A while back we heard from an older reader whose state pension appeared to be too low. We looked into this case and wrote it up and then started to hear from lots more people in a similar position. Eventually the whole thing snowballed, and we uncovered a huge can of worms of errors in state pension payments, whether to older married women, widows or the over 80s. As a result, DWP is now employing over 1,000 civil servants to manually check hundreds of thousands of cases for errors. They expect to find well over 200,000 people who have been underpaid and have budgeted nearly £1.5 billion for lump sum payments to those who have been affected.

Now a question we ask lots of our guests, on a more personal note, if £10,000 landed in your lap tomorrow, what would you do with it?

I’m in the privileged position of having paid off my mortgage and not needing cash to pay debts.  So, I would look to use the cash to support a mixture of local and global charities dear to my heart, making sure to claim ‘Gift Aid’ on the donation so that the charities received extra help from the Government.

Thanks very much Steve, great to hear those insights from your experiences.

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The content of any discussions shouldn't be taken as an indication of future FSCS policy positions. The views expressed by guests are their own and don't reflect the views of FSCS.