Former pensions minister says government will tackle creation of a second hand annuity market, as he sets down the gauntlet for new pensions minister Ros Altmann
Webb today revealed the Office for Budget Responsibility has already factored in the tax revenue it will reap from letting people sell their annuity in a second-hand market. The creation of a second-hand annuity market is therefore very likely, he said, speaking at Workplace Pensions Live today in Birmingham. “I think you can assume there will be strong impetus behind that idea.”
He continued: “Personally I am not against the purchaser selling their annuity back to the original place where they purchased it from.
“There will be years worth of secondary legislation to work out the secondary detail.”
Webb said although successful thus far, the auto-enrolment job is only half done - and the difficult half is yet to come. ”Five million are in, but there are five million still to come - and they work for smaller companies,” he said. Typically, these workers are harder to reach.
Increasing contribution rates is another “huge challenge” for the new government, said Webb. “It’s not good enough to leave it at 8 percent. That would be deceptive - people will think we have solved the problem for them and we haven’t.”
But he cautioned the government will face “serious barriers” if it hopes to raise the shortfall by asking employers to contribute more.
Altmann and the government will have to start thinking about increasing contribution levels ‘today’, said Webb. “The lead times on these things are huge. If the government doesn’t start thinking today about how we get beyond 8 percent, it won’t happen in this Parliament. So there is a sense of urgency [about] getting that 8 percent up.”
Auto-enrolment will create small pots by the score, Webb observed, and ironing out the details of pot follows member should be another of Altmann’s priorities. “The nitty gritty of that, how we avoid lots of frictional costs, still has to be worked through.”
Overseeing the new pension freedoms won’t be Altmann’s responsibility because it is a Treasury initiative, but she will inevitably find herself embroiled in the detail, predicted Webb.
“We have to think fast about how we evaluate the reforms that just came in and how we build up the data,” he said. Evaluating the success of the new pension freedoms will be difficult at first, because it will only become clear whether taking cash at the point of retirement was a good decision further down the line, he caveated.
A linked challenge for the new government is how to reconcile people’s dwindling financial capability in later life with the total autonomy they have been given over their pensions.
“It’s great to give people flexibility, but expecting them to make decisions into their late 70s and 80s - there has to be a mechanism… some sort of default, to make sure they end up in the right place,” Webb said.
Secondary legislation to enshrine the details of the new pension freedoms - and the proposed second-hand annuity market - will be a big theme of the next Parliament, he predicted. “You will be delighted to hear there will be more DWP consultation documents coming soon,” he told an industry audience.
Another item Webb listed as a priority for the next government is the creation of a pensions passport, or dashboard, so that people can see all of their pension pots in one place. “We surely in this Parliament ought to be able to get to a place, as you can in Sweden… where you can see all your pensions in one place.”
Finalising the practicalities around state pension reform, establishing whether the charge cap will come down lower than its current level of 0.75 basis points, and seeing whether independent governance committees will prove to have teeth are three other priorities Webb set out for the new government.