Julian Knight: Pension minister's plan is a flight to fairyland
Sunday 25 November 2012
'Too clever by half" is a peculiarly British phrase, summing up our long-standing national mistrust of the intellectual. We laud our Isambard Kingdom Brunels and warriors while the French adore their existentialists and pint-sized painters.
On this basis, I think they'd love our current Pensions Minister Steve Webb in the salons of Paris. For starters he's a professor, recognised as one of the coalition's biggest brains – up there with David "Two Brains" Willetts no less – and takes a very academic approach to his role, carefully weighing up evidence and inviting lots of discussion.
All well and good, and he has been, to date, light years ahead of some of the dullards who passed for pensions ministers under Labour. But in Parisian salon style, Mr Webb is also away with the fairies and I don't mean the green variety. Last week we saw the fruits of his latest burst of intellectualism, his discussion paper on the future of workplace pensions.
The centre piece is Mr Webb's idea for so-called defined ambition pensions. In short, what the prof would like firms to do is to move to a new type of workplace pension which would see risks shared between the employer and employee and be less dependent on the ups and downs of the stock market and interest rates.
In advance of the report, Mr Webb has been travelling the country meeting – in the dire language of modern government – stakeholders, getting them onside. According to officials, several big companies are interested in pursuing the defined ambition route for staff and I'm sure over time some may dabble.
There are lots of lovely platitudes directed at Mr Webb's defined ambition idea – you know the sort of thing: "a welcome addition to the debate", "interesting suggestions that merit further discussion".
In private though, these same people tell me defined ambition is "cloud cuckoo land stuff" and that Mr Webb is indeed "away with the fairies".
Defined ambition could have worked a decade ago when we still had a private-sector final salary pension system (defined ambition could be applied to the public sector but there seems no appetite from Mr Webb for that) and firms were looking for lower-cost less risky alternatives, but we are way beyond that time now.
Overwhelmingly firms have moved to defined contribution where the risks rest wholly on the employee. With the International Monetary Fund reckoning the UK economy will struggle to grow at more than 1.5-2 per cent a year over the long term, are firms really going to move back to a pension system where their risks and costs are upped once again?
What's more, the nature of employment is changing. I have a phrase "we are all freelance now" and we seem to be moving away from standard modes of employment with people more likely to become self-employed or take on contract work. In such a world employers still need to make a contribution to pensions of course, but it won't be through Mr Webb's complex defined ambition model.
He would do better looking at how to get more workers using the schemes they have. Auto enrolment is here for some and will arrive for all soon, but we need to get people genuinely interested in their pensions. This can only be done by letting them access their money when they want and making tax relief simpler and fairer (I would abolish higher rate tax relief on pension contributions and use the cash to boost the basic rate).
Mr Webb, who made a good start to his job as Pensions Minister, needs to forget dreaming his dreams and look at getting what we have now to work better. In the case of defined ambition, Professor Webb has proved too clever by half.
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