Nick Mann meets Steve Webb, the government minister charged with managing massive changes in workplace and state pension provision
There's a revolution taking place in UK workplaces, but, outside the pensions industry or the companies and workers directly affected, few will be aware of it. Auto-enrolment has seen hundreds of thousands of people signed up to a workplace pension scheme since it was introduced in October 2012, but it has grabbed few column inches to date.
According to the man responsible for making sure that the roll-out is trouble free - pensions minister Steve Webb - the fact that the vast majority of the population has little or no idea what auto-enrolment entails is a sign that everything's going exactly to plan.
"I often say that the reason you haven't heard about this thing is because it has been a success," Webb enthuses, when The Actuary catches up with him at the Department for Work and Pensions' headquarters in Westminster. "Imagine the potential for the computers not to work, mass opt-outs, taking money out of people's pay-packets when the economy's struggling, it being really unpopular - none of that has happened."
That bullishness could seem misplaced, given that most businesses are yet to be subject to the requirements of auto-enrolment, but his confidence is tempered by realism about the task ahead. While he expects smaller firms to make use of the pension scheme set up by government specifically to meet their needs - the National Employment Savings Trust - it's the companies "somewhere in the middle" that will be "the challenge", he admits.
The longest-serving pensions minister since the role was created in 1998, Webb has had much more than auto-enrolment on his plate since being appointed to the post in May 2010. Enrolling millions of people into workplace pensions is one thing, but making sure the schemes they're signed up to are of a good enough quality to deliver decent retirement incomes for savers is another issue entirely.
Pension membership has dropped dramatically over the past few decades and the guaranteed income provided by defined benefit (DB) pensions has been eclipsed by the less certain future offered by defined contribution (DC). In November, Webb tried to bring together the options available for addressing this in his Reinvigorating Workplace Pensions strategy.
Feedback has been largely positive. "I think people were pleased to see something concrete, something written down," Webb says. The government has had "a lot of conversations" since then, not least around plans to find a middle ground between DC and DB. The idea of a scheme-funded Pension Protection Fund for DC is "quite an interesting one", Webb notes.
"Also, there are firms that want to keep going with something that looks a bit like DB, but clearly not with all the bells and whistles. We're still looking at more radical options than that - for example, your private pension provision covers you for the first bit of your retirement and the state does more later."
Legislative change may be required, but Webb notes that some of the suggestions in the document could be introduced today. "I haven't invented risk-sharing," he smiles. "What we have to do now is narrow the field down, see which of these ideas really work for people."
That process has been given an added sense of purpose by the announcement that the new single-tier state pension will be introduced in April 2016, not April 2017 as previously stated. The state pension will be simplified to a flat payment of £144 a week, contrasting with the current situation where the basic state pension can be topped up by means-tested pension credit or the second state pension.
"What's nice - although it's not good news for actuaries, I'm afraid - is the simplicity of this," Webb says. To illustrate his point, he recounts a tale from his constituency, Thornbury and Yate, in Bristol.
"I had a constituent come in the other day who'd had this really obscure letter about guaranteed minimum pension (GMP) and his different periods of service. He couldn't retire early because his GMP for this didn't add to the GMP for that, and was it a contracted-out this, or was it a contracted-out deduction, or a GMP? I said this is all going, we're going to get rid of all of this."
That simplicity is not without its challenges, not least for the employers who have to deal with the end of contracting-out - the process where workers opt out of the second state pension and instead receive payments through their workplace scheme. Both employee and employer then pay lower National Insurance contributions.
Webb acknowledges that the single-tier state pension comes in quick succession to auto-enrolment, which has already meant British business has been "rethinking its pension provision". He's confident, however, that both government and businesses can cope with the changes and the time frame.
'We'll have to work hard to get it ready on time, although, unlike some reforms, it's a flow. Only something like 15,000 people are reaching state pension age in a normal week - we don't have this massive hit on a single day. From a company point of view, there are some things you have to do ahead of time, but the reconciliation for data and so on doesn't all have to be done on day one necessarily, so there may be a bit of lead time."
Providing certainty on the state pension is key, Webb says. "We want to get the law through as fast as we can, publish draft regulations as fast as we can, so people know where they stand. We're working full pelt on them."
The changes could also offer opportunities for actuaries. "A whole lot of firms are going to be weighing up how they recover their national insurance (NI) rebate - we say you'll claw back from your scheme accrual the NI you've just lost, so there will be a lot of work for actuaries working that out," Webb says.
Plans to automatically increase the state pension age in line with increased longevity also offer potential, he adds. "What about variations, what about different parts of the country, can we just jack up pension ages?"
Another "crucial" actuarial role, Webb says, is giving companies a "warts and all" understanding of what state their pension fund is in. That may not make pretty reading, given the battering that reported deficits have taken since the onset of the global financial crisis pushed the yields on gilts to record lows.
In March, chancellor George Osborne vetoed allowing schemes to change the way they calculate their long-term assets and liabilities by smoothing the discount rate. Instead, The Pensions Regulator will be given a new statutory objective to consider the long-term affordability of pension deficit recovery plans for sponsoring companies.
"Putting it in primary legislation... is trying to provide some reassurance to trustees and to firms and to give firms a slightly stronger hand in those conversations. They can say 'No, government says it's OK for you to think about those things, but it isn't just about us filling the deficit as fast as possible - you still want us here in 10 years, don't you?'"
Concerns over the impact of pension deficits have been accentuated by potential changes to the rules governing Europe's workplace pension schemes, the Institutions for Occupational Retirement Provision Directive. By placing capital requirements on schemes similar to those being introduced for the insurance industry under Solvency II, the plans could increase the reported deficit of the UK's DB schemes from £300bn to £450bn.
Webb is adamant that the new rules should not be introduced and claims a "momentum" behind this view, shared by other EU countries. "Yes, there are things to do on Europe-wide pension provision, on information, disclosure, that kind of stuff, but this whole funding obsession... my ideal outcome is it just gets dropped from this review," he says.Fighting a battle in Europe while overseeing a sea-change in state and workplace pension provision at home, it's safe to say Webb's in-box shows no sign of emptying any time soon. The mammoth task of simplifying the state scheme and achieving mass membership of workplace pensions is just phase one, he says. "With scheme quality, getting people beyond an 8% pension contribution, sorting out small pots and transfers - there's an awful lot else we can do."