The Minister for Pensions, Steve Webb, has continued his drive towards further pensions reform, giving speeches at the NAPF conference in Liverpool and at the Liberal Democrats’ Autumn conference, at which he vowed to watch the pensions industry “like a hawk”. Although the current catalogue of reforms has not yet been fully implemented, Mr Webb raised some further reforms which he hoped the next Government would implement.

The first of these concerned an extension of the automatic enrolment regime. At the moment, the total minimum level of contributions required for a defined contribution scheme stands at 8% of qualifying earnings. The minister acknowledged that this would not deliver a worthwhile sum for most contributors. He mentioned his preference for a system of ‘auto-escalation’, under which contributors’ pay rises would be linked to increases in the rate of contribution to the scheme. It would be possible for individuals to opt out of ‘auto-escalation’, as they can for auto-enrolment, but if they did not actively choose to opt out, then they would gradually contribute more.

The second proposal related to what Mr Webb referred to as, the ‘iniquity’ of our current system of tax relief. He gave the following example: 

“If I want to put £1 into my pension it only costs me 60p – the taxpayer contributes the other 40p through higher rate tax relief. But if someone on an average wage wants to put £1 into their pension it costs them 80p – the taxpayer only contributes 20p.”

The Government spends around £37bn a year on tax relief for pensions. Mr Webb noted that it may be possible to spend less on pension tax relief and also rebalance the system to provide a single rate.

Mr Webb also sought to expand on the reforms announced in the 2014 Budget which will deliver more freedom from next April. Those reforms will provide individuals in defined contribution schemes, who are approaching retirement, with the opportunity to access all of their pension fund at a time of their choosing. However, that will come too late for current pensioners who have already bought an annuity. Mr Webb, therefore, confirmed that he would consider whether to allow existing annuitants the option to convert their existing annuity policy into a capital sum to give them the same freedom as members who have not yet retired. The Taxation of Pensions Bill 2014-15 (which will implement many of the proposals from the 2014 Budget) is still working its way through Parliament, so Mr Webb accepts that any further changes will need to wait until after April 2015. It will be interesting to see how much more flexibility is offered to pension scheme members, following the general election in May 2015.

This post was contributed by Hannah Algrafi. For more information, email

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.