Employers and their staff should avoid rushing to make decisions around the new pensions freedoms coming into force on 6 April, and consider the date as the start of a journey rather than a deadline, according to Steve Webb, minister for pensions, speaking at Employee Benefits Connect 2015.

Steve Webb


“The chances are that it’s not going to be great as a customer service experience, and the insurance industry, and providers in general, have been doing everything they can just to be legal on 6 April, but [it will be] in the following months and years that we will see [product] innovation.”

As part of his opening keynote speech, Webb said: “6 April is the start of something; it’s not a deadline. It’s not ‘shop now while stocks last’. The freedoms will still be there on 7 April and indeed on 7 May, and if [an employee is] someone [aged] over 55 with a pot of money, why oh why oh why would [they] phone [their] pensions provider at midnight on 6 April?

“My strong advice to people is just take a bit of time. [They should] look at [their] options [and] get the information. There just is no rush,” he added.

Auto-enrolment success

Webb went on to thank employers for their efforts around auto-enrolment, which he said had been a huge success, with over five million employees now enrolled.

”I know that auto-enrolment may not have been the greatest thrill, but seriously, thank you for all that [they] have done to make this such a success, because there are now millions of [staff] who would not have had a pension and who now will, so thank you.”

But he said that the next government would have to address auto-enrolment contribution levels, which will be insufficient to provide a comfortable retirement for many staff.

The current minimum contribution rates of 1% for employers and 1% for employees are set to increase to 3% for employers and 5% for employees from 1 October 2018.

Webb said: “The question is, what then? [Employers] might say that presumably that’s the end, but it isn’t the end, because you hear it said very often, 8% is not enough for most [staff]. Fine, if [they are] earning £10,000 to £12,000 a year, a state pension of £8,000 and an 8% contribution [rate] probably gets [them] more or less what [they] need in retirement. But if [they] earn £15,000, £20,000, £25,000 or more, it doesn’t.

“My worry is that [staff] come back to me in a few years’ time and say, ‘hang on Mr Webb, you set the contribution, you set the 8%, I did what you told me and I’m now retiring on a dramatically reduced standard of living. Why didn’t you fix it for me?’”

Webb dismissed compulsory pension scheme membership, adding that he is comfortable with employers’ current 10% opt-out rate.

“The [staff] that are opting out, by and large, are probably the right [staff],” he said.

These employees may include staff who have either exhausted their life time tax limits, who are near the end of their working life and who have enough savings, or who simply hate the idea of a pension and don’t trust the product.

Webb believes that employers can encourage employees to save more by promoting the idea of ‘auto-escalation’, whereby staff pay in to their pension a proportion of any future pay rise, assuming they receive one.

He added that the government is currently passing legislation to remove the ‘daft’ requirement for employers to unnecessarily auto-enrol staff who, for example, may have resigned from their organisation.

He said: “What we’ve tried to do with all of auto-enrolment is to make it stable [and] make it clear how it works, but when [employers] say that there’s a particular bit of the system, a rule that’s a bit daft, we’ll be willing to change it.”

Opt-out rates highest among over-55s

Opt-out rates are currently highest among the over-55s, who have been reluctant to tie up their money in later life by purchasing an annuity.

This is set to change with the new pension freedoms, which include the abolition of compulsory annuity purchase for defined contribution pension scheme members at retirement. Webb believes that this will reduce the proportion of over-55s who will choose to opt out of their workplace pension in the future.

He went on to urge employers to support older staff to remain in work.

”It’s absolutely clear that the only way we can make the pensions jigsaw add up is by making sure that more and more [staff] work for longer. [I’m not talking about] working until [they] drop, but working to a more realistic time[frame], and employers clearly have a crucial role [to play] in this.”

Employers can help to support older workers by reviewing their recruitment, training and flexible working policies.

Webb said that employers that help support employees with caring responsibilities to remain in work would cultivate a hugely loyal and motivated workforce.