Complete abolition of higher rate tax on pensions, immediate access to tax-free cash and no more than a grudging acceptance of the Nest consensus. John Greenwood finds Liberal Democrat work and pensions shadow Steve Webb in radical mood
Employers and their staff are not the only people prioritising jobs over pensions. The realities of balancing a fully costed manifesto have just seen the Liberal Democrats shelve their commitment to an early introduction of a universal citizen’s pension.
But the party’s spokesman for work and pensions, Steve Webb, the honourable member for Northavon, is quick to argue that the recent change of tack is a postponement rather than a policy dropped.
Webb says: “What it is important to understand is that there are various strands to this policy, one of which was restoring the earnings link. That’s in the manifesto and has been costed. The long-term goal of a citizen’s pension, which is about giving pensioners enough to live on so they don’t need means-tested benefits, by definition was always a work of many, many years.
“We were never going to get a pension from £95 to £130 overnight or even in the parliament. It was always long term. All that has happened is that we have said money is very tight and the top priority is jobs and education in the first few years of a new parliament, but the long-term goal is still there. So it is deferred rather than dropped. We are working towards putting something in the manifesto that makes the first steps towards a citizens pension,” says Webb.
Webb has been vocal in his criticism of the way the personal accounts, now Nest, procurement process has been conducted. So does he think, with one provider left in the ring, that the procurement process will ever be successful?
“I assume it will happen, they would dare not let it not, and that is the problem,” says Webb. “To then say ’actually we don’t think you are up to the job and will start again’, that is inconceivable. So you hope that Tata will behave appropriately and I’m sure that they will, but it is a risk.
Anything not nailed down in the contract – you know who will get the best deal.”
Does Webb share pensions minister Angela Eagle’s view that it is normal to only have one contender at this stage? “I have never come across it before. Clearly the field narrows, but to leave yourself that exposed, if it is normal, it’s not right,” he says.
Webb is equally caustic when it comes to his Tory counterpart Nigel Waterson, particularly in relation to his refusal to disclose what his ’Plan B’ for auto-enrolment is, should a Conservative government decide to drop Nest following its review of the policy.
“The Tories are being staggeringly evasive about it, which is outrageous. Buying a pig in a poke or what? My guess would be that they will scrap it and just try and reinvent the stakeholder, and they don’t want to say that this side of an election because they know they would get criticised. I presume they would go down the line of automatically enrolling everyone into stakeholder,” says Webb.
And would he support such a Plan B? “I would be worried about the charging levels,” he says.
Pressing Webb on what the LibDems’ Plan B might reveal shows a lack of support for the core idea of the entire pension reform package currently going through Parliament. This is based on the party’s radical approach to overhauling the UK pensions system, an approach that would rightly or wrongly leave more than a few casualties in the industry.
“Our policy is that personal accounts stop mattering, and by that I mean why does it matter if millions of people pay into a personal account, just because without it they will have a useless basic pension and then get into means-testing.
“So our absolute top priority is to sort out this gap between the basic pension and means-tested level and the more you do that the less it matters whether you take a personal account or a stakeholder or whatever. But in the short term, clearly having come this far we want these products to be available,” says Webb.
So are the LibDems actually signed up to the pension reform package?
“Not as part of our strategy. We are not signed up to personal accounts as a way of filling a gap between a useless state pension and means-tested benefits. We would proceed with Nest if we were in power, but we need to sort out the state architecture on which it should be built,” says Webb.
Webb confesses that the effect of the RDR restriction on commission on group pensions, and its potential to restrict distribution of superior non-Nest pensions in the workplace, is not something that has come onto his radar.
Scrapping the age 75 annuity rule and allowing early access to tax-free cash are both in the manifesto, reflecting a laissez-faire attitude to pensions wealth designed to make long-term saving more appealing.
“We’ve always taken the view that it is your money. If it doesn’t hurt anybody else, which it doesn’t, then we want to give people the maximum freedom with their money. We are at the forefront of the development of ideas of early access.
“So if someone says you can take your money out early for repossession or debt, we say that it’s your money so why should ministers and a state body decide what you’re good at spending your money on. It would obviously need anti-avoidance rules, for recycling and things like that, but it would make pensions-saving popular,” says Webb.
“And we still think there are going to be 50,000 houses repossessed this year. Many of these households have someone with a pension pot. The typical arrears on mortgage repossessions is barely £6000.”
Does Webb not fear that early access reduces the amount of money people have in their pots when they retire?
“I don’t care. We have to treat people as grown-ups, and particularly if they do use it to stop repossessions, they will have a valuable asset when they retire.”
Probably the most fundamental change in the LibDem’s package is to abolish higher rate tax relief for pensions altogether. The billions saved by this redistributive policy would be spent on raising the personal tax threshold to £10,000.
“We have said consistently that higher rate relief should go altogether. That is the key to raising the personal tax threshold to £10,000. Why should you pay tax on the minimum wage? That is just ridiculous. The abolition of higher rate tax relief on pensions, the mansion tax on property over £2m and taxing capital gains at the same rate as income gets you a lot of money from high earners,” says Webb.
But would not such a policy disenfranchise entirely a whole swathe of high earners from pensions?
“Well I’m not sure that’s right. A lot of them will still want it. They don’t want to mess around, it’s deducted from salary, it’s locked away. Yes, some people would set up other structures but I think that the vast bulk of people will stay put.”
But who would want to pay in £80 on the basis that they were going to get £60 back at retirement?
“This is a great myth. There are very few higher rate taxpayers in retirement. Only half of pensioners pay tax at all. Of those only 4 per cent pay at the higher rate. High earners will be okay in retirement.”
As with the effect of the RDR on corporate pension distribution, Webb confesses welfare reform and health and wellbeing in the workplace issues are not high up his agenda. On the one hand, he says looking after staff to improve productivity is such an obviously good idea, sounding “mother and apple pie”, that gaining political capital from the concept is hard. On the other, he also asks how interventionist the state should be in telling employers how they should run their businesses.
“There is a question as to the role of the state in all of this. Do we need to nudge employers? You would hope that a lot of this is good employment practice. When it comes to benefits, then the state clearly has a big interest. But we tend to focus more on the points of differentiation between the parties,” says Webb.
On public sector pensions, the LibDem wants a Turner Commission Mark II.
“It is dangerous to come up with knee-jerk responses to this, because you’ve got people who put in no money and others who put in lots, people with secure jobs and those whose jobs are more like the private sector, different accrual rates, funded and unfunded schemes.
“I would like to see a quick answer on top earners though. There have been some shocking examples of pensions payoffs, early retirement and the rest. We toyed with the idea, its not concrete policy yet, of saying you can’t accrue a state pension of more than double average earnings, which would be just over £50,000. And that would affect MPs,” he says.
“There will possibly be 200 new MPs from May and you certainly don’t want to start locking them into a new scheme that is too generous,” says Webb.
But asked whether he thinks the new Speaker of the House, John Bercow, should join Gordon Brown and Jack Straw in offering to forgo his £2m grace and favour pension, given the job only became vacant because of the scandal of MPs’ snouts in troughs, Webb refuses to be drawn.
“I think that is for him to decide. It is easy to make these grand gestures. I would rather have a system that is seen to be fair across the board.”
So with the prospect of a hung parliament growing, how does Webb see his role in the field of pensions policy?
“We are going into the election to maximise what we are standing for and then we will have to see what the public delivers. We are not saying we won’t do a deal on policy X unless we get a citizen’s pension however,” says Webb.
But that is not an eventuality he is predicting. “I think the Tories will win outright, and if they do not get a majority they will govern with a minority. If you were them, that is what you would do, because if we cause trouble they’ll call another election.”
All about Steve Webb
Born: 18th July 1965
Education: Dartmouth High School, Birmingham 1976-1983
Hertford College, Oxford 1983-1986
1986-1995 Institute for Fiscal Studies 1995-1997 Professor of Social Policy, Bath University
1997- MP for Northavon
1999-2005 Lib Dem Spokesman on Work & Pensions
2005-06 Lib Dem Spokesman on Health
2006-07 Lib Dem Manifesto Group Chair
2007-08 Lib Dem Spokesman on the Environment, Energy, Food and Rural Affairs
2008-09 Lib Dem Spokesman on Energy and Climate Change
2009- Lib Dem Spokesman on Work & Pensions
Pensions/benefits, Third World issues, Constituency issues
Internet/computing, music, armchair supporter of West Bromwich Albion football club