Election 2010: Lib Dem's Steve Webb on pensions

Liberal Democrat pensions spokesman Steve Webb talks to Tom Selby about being the party who ask the awkward questions.

Not many people are able to wax lyrical about pensions while retaining their dignity - Steve Webb does.

But don't be fooled. Because Webb - tipped by many as a future Liberal Democrat leader - is serious about pensions. And importantly, he's done this job for five years in total - about five times the average stay of a government pensions minister.

However, being serious about pensions and being taken seriously are two entirely different things. And if there were any lingering doubts about the scale of the challenge he and the Liberal Democrats face, the response of the audience at The Pensions Advisory Service conference recently delivered a shuddering confirmation.

"Let's kick off with a show of hands," Webb began, "who here, honestly, can say they woke up this morning thinking, ‘I can't wait to hear what the Liberal Democrats have to say about pensions'"... silence... no hands... "Right, well this should be good then".

Influencing government policy

Realistically, the role of the Liberal Democrats - certainly in the short term - is as a policy influencer rather than a policymaker. However, with the prospect of a hung parliament a distinct possibility, the UK's third party could have some serious leverage when the general election finally rolls around.

Webb firmly believes his party has a critical role to play in "asking the awkward questions". While he admits Lib Dem ideas are often "fobbed off" by government, he warns that any let-up could lead to a dangerous "cosy consensus" on pensions policy.

"Some of the most consensual legislation has been the worst. Think CSA or dangerous dogs - when everybody agrees, I think your antennae should twitch up and say ‘hang on a minute'.

"I've never felt that our role is just to nod sagely and say this is for the good of humanity - it seldom is."

State pension

Anybody who's heard Webb talk about pensions will no doubt have been subjected to his state pensions mantra.

The absolute top priority, he says, is the "unglamorous business" of getting the state pension to a "decent level".

"The first thing we need to do is get the state pension sorted out. At the moment we're building a whole edifice on a very shaky foundation."

Restoring the earnings link for state pensions "almost symbolically" would be an early priority for the Lib Dems.

"But then, clearly, the priority for any spare cash - if there should be such a thing - would be getting the state pension up."

Next on the agenda would be the removal of the legislative strictures which, Webb says, prevent companies from providing "decent pensions" for their employees.

However, those pensions - certainly in the short to medium term - are unlikely to come in defined benefit form.

"I don't think you can buck the market - I don't think you can stand Canute-like on the shore, resisting the flow out of DB and just wish it away and pass a law or whatever. But you can make it easier [for businesses]."

To achieve this, the Lib Dems would look to provide pension funds with liabilities-matching instruments.

Webb explains: "I think the financial instruments that governments make available should be assets that pension funds can use to match liabilities better. You can look at index obligations and that kind of stuff, and we're certainly open to ideas on this."

Reaching equilibrium

Webb constantly refers to the need to deliver a "decent" pension for UK citizens. I suggest to him that perhaps, as companies shift seemingly inevitably towards defined contribution schemes, such an ambition could prove difficult to achieve.

"That may be the case in the short term," he admits. "But while I'm not under any illusions that the tide is flowing away from DB, pendulums have a knack of swinging to extremes.

"So while the flow is in one direction, I do think that one day employers will wake up and think, ‘I know how we can recruit and retain people - let's offer them a decent pension'.

"But getting to that equilibrium requires a lot of people to go to an extreme position, and I think that's where we're heading to at the moment."

NEST

One of the present government's key saving policies - and one which has met the ire of Webb in the past - is the introduction of autoenrolment and the National Employment Savings Trust.

While Webb insists he is not against the principles behind NEST, he feels it is doomed to failure unless significant amendments are made.

And the spectre of levelling down is still very much on his agenda.

"We are concerned at the risk of NEST creating a rush to the bottom," he says. "I'm not talking about blue chip top-notch companies, but if you're struggling with international competitors or indeed others in the industry who are providing bare minimum, [the pension] is a cost you can cut.

"My feeling is that the current structure of 4% + 1% + 3% is hopelessly inadequate.

"It's neither fish nor fowl - it's not enough to build a decent pension, but it'll cost individuals and businesses serious money."

Webb is also a stern critic of the phasing of contribution, labelling the proposals "timid".

"In year one, there really will be people putting 5p into their pension, and that just seems ridiculous to me. If we're going to go for it, let's go for it - at least then the first NEST pensions will be marginally less useless. At the moment it's just so timid."

Deregulation

One of the great bug bears of pension commentators is the overbearing nature of government regulation.

Somewhat surprisingly, Webb is cagey - or perhaps pragmatic would be a better term - over proposals to strip away legislation.

Webb says: "We'd like to reduce the burdens on schemes, but I think it's always the case that everyone in opposition demands simplicity and everyone in government legislates with complexity.

"I'm not sure there's a list of rules I'd scrap - we're more than happy to look at any individual rule.

"But there's a danger that you gild the lily and kill the goose that laid the golden egg - you have to consider whether the investor protection that you're putting in is worth the risk that you end up with much worse pensions because people just stop providing them."

However, a Liberal Democrat government would take a long, hard look at the business of contracting out - a process Webb has previously described as "nonsense".

"Personally, I'd like to see contracting- out abolished all together - then we'd look at getting the basic state pension and the second state pension rolled into one," Webb says.

While radical simplification may be off the cards, one area that Webb and his party are particularly keen on is the very liberal idea of early access.

"We're firmly of the belief that the pension fund is your money, so early access would certainly be part of our policy. And I think it'd help to popularise pensions if, under certain circumstances, you could get your hands on that money sooner."

Webb ends with a parting shot at one of the great dividing issues in pensions - means testing.

"With mass means testing, why would you bother saving? We want to make people realise that the saving they do will make them better off.

"But the worst advocates for pension saving are the people who write to me saying ‘I wish I'd never bothered - I'm no better off than my neighbour, they just got a cold weather payment, I didn't'.

"There will be many more with every passing year. If we don't tackle that, there will be so many people of working age who get harangued by their parents."