PENSIONSANDSAVINGS.COM

18 July 2016

• Potential dangers ahead for pensions if responsibility moves from DWP to Treasury
• Could be threats to auto-enrolment
• Must continue to address employer challenges in funding Defined Benefit schemes

It would seem that the role of Pensions Minister is being downgraded by the new Government.

What does that mean?

At the moment, we just don’t know, however it could be that this poses threats to future pensions and we must be alert to the dangers.  Pensions are vital for the long-term future of millions of people in our country.  We are in the middle of a major programme of reform and it needs to be guided carefully, otherwise there are dangers that pensions policy could be derailed.

What are the risks of downgrading Pensions in DWP?

Pensions Bill:  The recent Queen’s Speech contained provision for a Pensions Bill, which I fought really hard to obtain.  It is designed to protect pensions.  Currently, people’s pensions are at risk if the trust-based DC pension scheme they are saving in winds up.  I do hope the new Government will not put these important measures on hold.  Members’ pensions are not safe and the protections should have been put in place long ago, they are urgently required.  The new Bill would also introduce a cap on the exit charges on members’ funds when they want to move from one scheme to another.  At the moment, members can lose over 5% of their money just because they need to move scheme.  The new law would cap those charges at much lower levels.

Auto-enrolment:  Currently, policy responsibility for auto-enrolment lies in the DWP.  If the Treasury takes this over, there are risks to the programme.  Auto-enrolment is working really well, as millions of workers are saving in pension schemes for the first time, with the help of their employer.   We are establishing as the norm that every employer is expected to provide a pension for their staff.  This is a major change but is an essential part of the radical pension reforms that are underway.  The new state pension will have no more earnings related elements building up, so all the earnings linked retirement income must come from private pensions or other assets.  We must not let the EU referendum fallout derail this vital programme.

Defined Benefit Pension schemes:  At the moment, the DWP is responsible for our system of pension protection and there are over 11 million workers saving in Defined Benefit schemes who need a robust protection framework.  Funding levels of many schemes have deteriorated sharply, despite employers putting significant sums into them, and the Government urgently needs to address the challenges facing trustees and employers in connection with meeting their pension promises.  Work is already underway in the DWP which I had initiated last year and accelerated recently, but it is complex and needs careful handling.  A new Pensions Minister needs to engage with this work and manage the issues surrounding the British Steel pension consultation and the knock-on effects on all other schemes.

Pension Wise:  Responsibility for Pension Wise recently moved from Treasury to the DWP, to ensure all publicly-provided pensions guidance is located in one place.  As DWP was already responsible for the Pensions Advisory Service (TPAS), it made sense to put Pension Wise and TPAS together and form a new guidance body to help people engage with planning their later life income.  This was also due to be in the new Pensions Bill and I do hope it goes ahead, even if based within Treasury again, rather than DWP.  The public need help and guidance to understand how to plan their retirement income and customer satisfaction with the Pension Wise service has been very high.  The new Government must not let this be a casualty of the recent political upheavals.

Bringing private pensions policy under one roof

Last week I suggested to Number 10 that I would be delighted to help the new Government with a radical overhaul of pensions policy responsibility.  This could see all private pensions policy joined together in one place, under a Minister in the Treasury, while State Pension policy stays within the Department for Work and Pensions.  Indeed, I proposed this to David Cameron last year after he asked me to be Pensions Minister but he decided against it.

I think it makes sense for private pension savings policy to be run in one place, rather than being split across Departments.  I would have been happy to do that in the new Government but only based in the Treasury, not the DWP.  I wonder if there may be a move in that direction?

Why would it make sense?

As the new state pension means an end to contracting out, the role of the DWP in private pensions is much reduced.  Under the old system, millions of people were building a part of their state pension in a private pension scheme, paying lower National Insurance in exchange for giving up rights to part of their state pension.  This policy has ended, so the state and private pensions are now totally separate.  Therefore, it might be a good time to merge private pension policy together in one place rather than having contract-based private pensions policy resting in the Treasury, while trust-based pensions policy is made in DWP.  There are currently two different regimes, one for pension schemes set up under trust and one for pension schemes that are under contract law.  Bringing these policies together could help streamline and rationalise the rules, although there would be enormous complexity in doing so.