Steve Webb has appeared in a variety of guises in the past but never before as the nearly Oedipal, guitar wielding Marty McFly, in his own private version of “Back to the Future”.
No doubt inspired by Madonna at her blondest, Mr Webb has announced something he calls “Defined Ambition” pensions.
I don’t know if you have ever been through one of those branding sessions where you come up with a random series of “inspirational” values which you then cut out and randomly paste together in the hope of accidentally creating a phrase which sums up the essence of your inner being. Sometimes it works, but more often than not, all you come up with is some thing as empty, meaningless and trite as “Defined Ambition”.
So, basically the idea is that it’s a Defined Benefit scheme, and changing the word “Benefit” to “Ambition”, doesn’t change that.
The premise is that essentially the employer makes some form of defined benefit promise to the members. Here’s the brilliantly innovative bit. If it turns out for whatever reason that actually, when a member comes to retire, there is not enough money to fund the promised level of benefit, then the employer can change the level of benefit so that it can reflect what the fund can actually provide.
Except it’s not brilliant. And its not innovative. It’s exactly what an employer who established a defined benefit scheme in the 70’s thought they were signing up for. Back then schemes were structured so that if at some point in the future the benefits provided proved to be unaffordable then the employer could close the scheme and the member would be entitled to whatever benefits could be provided by their share of the fund. Successive legislative changes were wheeled out by Governments of all parties which added, priority orders, preservation, revaluation, pension increases, regulation, compliance, culminating with the unilateral imposition by the Government on employers of a “Guarantee” where once there had been an “Ambition”.
The fact that the ambitious rather than guaranteed nature of the benefit promise was not properly communicated to members was not justification for the legislative conversion.
In practice it sounds a lot like a cash balance scheme with the scope to fiddle with the benefits once they are in payment.
But previous Governments thought this sort of flexibility, that is the ability to reduce member’s benefits without their consent, was a bad idea and outlawed it, so why the change of heart? I’m not entirely sure if this latest move represents a belated recognition that successive Governments have destroyed private sector defined benefit pension arrangements in the UK, and would really, really like to turn the clock back, or a failure to understand and learn from pension history. Either way its another poorly thought out stab in the dark, from a Minister we had been led to believe understood pensions.
For some time now I’ve been carrying around an Oscar Wilde quote, and was actually beginning to think I’d never get the chance to wield it in anger. Now, thanks to our Pensions Minister, it can be fully deployed.
“Ambition is the last refuge of failure.”