Steve Webb sets out ‘three tests’ for government pension review – must not be ‘nobbled’ by Treasury from the start

With the second stage of the Government’s pensions review, focusing on the adequacy of pension savings, due to be published on Monday, former Pensions Minister and LCP partner Steve Webb has set out ‘three tests’ against which the announcement and the review should be judged.

Steve Webb’s three tests are:

• Was the review given a ‘free hand’, including recommending reforms which will cost the Government money? Most changes to the system, including getting people to save more, will have a cost implication, such as through higher costs of tax relief. But a proper review can only do its job if it is allowed to consider all options and has not been hamstrung by the Treasury from the start. In particular, it needs to be able to set out a timetable for improving contributions over a realistic period.
• Will the review look at the whole pension system, and not just private pensions? With the state pension representing such a large part of many people’s retirement income, and particularly so for many women, a proper review of the adequacy of pension saving needs to look at pension income in the round, and not just private pensions.
• Will the review look at wider issues around long-term and short-term saving in an integrated way? It is hard to look at proposals such as increasing contributions without thinking what this means for those on lower incomes who may lack short-term savings. Ideas such as ‘sidecar’ cash savings, integrated into the pension system need to be in scope of the review. And with a million more pensioners in rented accommodation expected in the next two decades, the potential for using pension savings to help build a house deposit should also be considered.

Commenting, Steve Webb, partner at LCP said:

“This review is a once-in-a-generation chance to tackle the growing crisis of inadequate pension saving in the UK. To be effective, the review must not be nobbled by the Treasury from day one, but must be free to come up with its own recommendations – even if these cost money. It needs to take account of the whole pension system, including the state pension, which is so vital to many. And it needs to think about saving in the round, including short-term cash saving and saving for a house. One of the worst outcomes for today’s working age population would be to end up having to fund a rent out of a meagre pension pot, and this review is the chance to look at that issue as well.”