Conference Speeches: Steve Webb: “We spend £37 billion on pensions tax relief, mostly on well-off. Next Government will need to address the unfairness

Continuing our series of Conference speeches reproduced in full, here is Steve Webb’s from this afternoon. He said that he wants the next Government to look at tax relief on pensions and he looked back on the work that he had been doing on pensions over the last four years. He also revealed that the donor who gave £1 million to UKIP is standing against him in May. If this bothers you, If this bothers you in any way, you can donate to his local party here.

Those of you who were paying attention to the news last week will have seen the story of the former Tory party donor who has now given a million pounds to UKIP.   What you may have missed is that he has announced that he will be standing against me at the next General Election.

This sort of announcement certainly focuses your mind on the issue of fund-raising, and our next jumble sale will have to be a real corker!   Indeed, if anyone in the hall would like to help us level the playing field in Thornbury and Yate, I will be available to receive donations, but nothing over £100,000 please..

Anyway, as well as being the MP for Thornbury & Yate, I have had the honour of being the Minister for Pensions for the last four-and-a-half years.

They tell me that I’m the longest serving pensions minister since records began.   Though I probably reached that landmark in about third week in office, such was the frequency with which my predecessors came and went.

And supporting me in Parliament have been my colleagues John Hemming and Mike German whojointly chair our Parliamentary DWP committee, Mike Thornton who serves on the DWP Select Committee, and Brian Paddick, Cathy Bakewell, Ben Stoneham and Celia Thomas, who have all worked hard to make sure that the Liberal Democrat voice is heard loud and clear in Parliamentary debates on these issues.

But you know, simply being in office though is not good enough – you have to achieve things.   And I believe that as Liberal Democrats we can be proud of what we have helped to achieve over that four-and-a-half year period.   And if we don’t shout about, nobody else will do it for us.

First and foremost, I’m talking about a fundamental re-modelling of the state pension, taking it back to the model devised by that great Liberal, William Beveridge – a decent pension, paid at a flat rate, without the need for means-testing, based on a record of contributions.

But we’ve brought it up to date, recognising that “contributing” isn’t only about having a job and paying national insurance.  We’ve recognised that people who are bringing up children or caring for elderly or disabled people are contributing just as much to our society.

So for the first time ever, all contributions will be valued equally, with a year spent in caring role earning you just as much state pension as a year running a FTSE 100 company.   That’s Liberal Democrat values in action.

What is exciting for me is that the legislation to make this change has now gone through and we are planning for implementation in April 2016.   People due to retire over the following five years are now contacting us in their thousands, asking how much pension they will receive and the early data we are gathering shows that the new system will be a real boost for women.

For many men they will see little change to their expected pension in the early years of the new scheme.   But around one in three women who have been in touch has been told that they will get more pension from their own NI contributions under the new rules than under the old rules.

That is a concrete example of the Liberal Democrats taking action in Government to deliver what we promised in opposition, and we need to make sure people know about it.

And of course our focus is not just on tomorrow’s pensioners but on people who have already retired.

The strategy of successive Labour and Tory governments was simple.  To let the basic state pension whither every year after Mrs Thatcher broke the earnings link in 1980 and then hope to catch poorer pensioners through a complex and deeply flawed means-test.

The strategy set out in our 2010 Manifesto was very different.   We set out plans to reverse the decades-long decline in the value of the state pension by introducing the triple lock – increasing the pension each year by the highest of the growth in wages, prices and 2.5%.

This is the policy contained in our manifesto, negotiated into the Coalition agreement and implemented in Government.   As a result we now have a state pension which is a bigger share of the national average wage than at any time in more than two decades.   And in the next Parliament we will secure the long-term future of the triple lock through placing it into legislation. With an average retirement of more than two decades, anything less leaves exposing the very elderly to substantially reduced living standards as inflation eats away at their income, year after year.

But a state pension will only ever be a start for most people.   For most people who have

been in work they will want a pension of their own on top, with contributions from their employer and topped up by tax relief.

That is where a second pensions revolution comes in – automatic enrolment into workplace pensions.   When we took office, the proportion of people working in the private sector who had a pension of their own had been in more-or-less steady decline since the 1960s.  Conference, I can tell you that we have now started to reverse that decline.

No fewer than 4.5 million people have been automatically enrolled in the last two years, and nine out of ten have chosen freely to remain in a pension.   That is over 4 million people in a pension now who were not in a pension two years ago.   The programme will continue to roll out until 2018, by which time fully ten million people – nearly a quarter of the working age population of the country – will have been enrolled, an average of over 15,000 workers per constituency.

These are people who would have missed out on a workplace pension who now have the chance to build a decent standard of living in retirement thanks to measures we have implemented.

We are also making sure that these pensions offer decent value for money.  The last Labour government thought it was fine for pension providers to charge up to 1.5% a year for running a pension.  We disagree.   So from next April we are imposing a charge cap of 0.75% on automatic enrolment pensions, making sure that your hard-earned cash turns into a retirement income for you, rather than lining the pockets of the pensions industry.

But there was still a gap in these reforms.   We’ve sorted out the simple decent state pension as a foundation for future retirement savings.   We’ve made sure millions more people have a pension of their own and that we tackle rip-off pension charges.   But having built up a pension pot people still had very little choice what to do with it.

The wealthy had options, as they always do, and the people with tiny pension pots could take cash.  But most people in the middle had little option but to buy an annuity, often generating a very poor income in these days of low interest rates and increasing life expectancies. Something had to be done.

I have been demanding annuity reform for many years.  As long ago as 1999 I stood up in a rather less-than-packed House of Commons to call for the then Labour government to relax the rules which forced people to buy an annuity at the age of 75.   Naturally, Labour rejected my arguments just as they still don’t really buy in to our reforms today.

But earlier this year this Coalition government brought forward a genuinely Liberal reform. It started from the principle that individuals, not the Government, are the best judge of how to use their own money.   Yes, pensions can be complicated.   Yes, people may need help to guide them through the implications of their different options.   But as liberals we are prepared to put our trust in people to make the best choices for themselves and their families.

And if that does involve buying a flash sports car, then I can live with that.   (Actually, the day after I made my now notorious comment about people buying Lamborghinis with their pension pots, Boris Johnson wrote in the Telegraph that when he heard me say this it made him “want to stand on his chair and cheer” as it was such a Liberal thing to say.   I’m not sure whether that adds to my credibility or not, but I thought I’d just mention it!).  Indeed, one of my constituents contacted me the day afterwards and said: “Steve, these Lamborghinis are all very well, but at my age I struggle to get in and out of mine”!

In Government now we are working hard on delivering that new freedom next April.   There will be a legal right to impartial guidance on your options, whether online, over the phone or face-to-face, helping thousands more people to make informed choices.   And we will need to make sure that as the financial services industry creates new products and options to meet these new freedoms, we put the consumer front and centre of our approach.

Whilst it is difficult to regulate products that don’t yet exist, I am clear as a Liberal Democrat that we must watch the industry like a hawk and step in if necessary to make sure we do not have a repeat of some of the past horror stories for which the pensions industry has unfortunately become all too well known.

This is a proud list of major reforms, but inevitably there is still much more to do.

Having got millions of people in to workplace saving we need to get them saving more than the bare statutory minimum of 8%.   I am quite attracted to the idea that when you start a job the norm is that each time you get a pay rise a part of the extra cash goes into your pension, building up gradually to a worthwhile sum.  You could opt out of this ‘automatic escalation’ but unless you actively chose to opt out, you would gradually contribute more.

We also need to tackle the inequity – or should I say iniquity – of the current system of tax relief on pensions.

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 then 80p – the taxpayer only contributes 20p.   That cannot be right.   We spend something like £37 billion a year on tax relief for pensions and yet overwhelmingly the money goes to those who are already well off and who will end up with decent pensions in any case.  We could probably spend less on pension tax relief overall – helping to contribute to deficit reduction – but also rebalance the money so that everyone, rich or poor, got help at the same rate.  We need to work through the details, but in my view the next Government will need to address this longstanding unfairness.


As well as pensions, I want to say a few words about the other half of the Department in which I serve.

What about ‘welfare’, or what I still touchingly think of as ‘social security’.   What do the Liberal Democrats have to contribute to this vital debate?

For me, a definition of a Liberal society is where the information on your birth certificate does not determine your future.   Whether you grow up in a family with one parent or two.

Whether you are a boy or a girl, black or white, able-bodied or disabled.   These things should not define the course of your life.  Instead we should enable people to make the most of their potential, irrespective of their background.

That should be the guiding principle of a Liberal Democrat approach to welfare.

Very often that will mean helping people to get a job and keep a job.   We’ve already legislated to ban age discrimination and forced retirement in the workplace.  But we also need to ensure that Government programmes to get people back to work are focused on the individual, not forcing square pegs into round holes.

And we also need to make sure that we are making the most of local expertise, whether through local government, local enterprise partnerships or anyone else who is best placed to help unemployed people get back to work.

It also means treating people with disabilities fairly, and not forcing them to jump through endless hoops simply to access what they are entitled to.   So we should be looking to see whether the needs of disabled people could be assessed in one go for their different disability benefits and social care needs, rather than having constant assessments and reassessments for different benefits and separately again by local authorities.

In similar vein, the system has to be designed to serve individuals in all of their diversity, not making rigid distinctions which don’t fit the complex modern labour market.   So the current system which classifies you either as in work or out of work, fit for work or unfit for work, full time or part time, needs to change.  We need a system which can cope with hours that vary from week to week, with people whose health condition means they can do some work but not a full-time job.  And we need a system which gets it right there-and-then, rather than relying – as the tax credits system does – on an endless process of annual reassessments, underpayments, overpayments and clawbacks.

That is why Nick and I have been more than happy to support the principle of the universal credit which rolls six different means-tested payments into a single system.  Of course there have been teething problems, but in my view the sooner we can move people onto this new and more streamlined system, the better it will be for people who depend most on the benefits system.

A Liberal Democrat approach to welfare also means enabling people to get out and about to travel for work or social life, which is why we are making no changes to the pensioners bus pass and want to expand discounted bus travel to young people.   But it also means recognising that some groups don’t need extra help from the state, such as the small minority of pensioners who pay tax at the higher rate, and therefore withdrawing winter fuel payments and free TV licences from this group.

We also need to do more to make sure that people understand what is expected of them when they claim benefit and do not have their benefits withdrawn unexpectedly or without proper explanation.   That is why we suggest a ‘yellow card’ system whereby someone receives a clear warning in the event of a breach of benefit conditions and is told what they need to do to put things right, only being sanctioned in the event of a knowing and deliberate further breach of the rules.

In summary, our vision is about tackling the causes of poverty, not just relieving the symptoms. And it is about creating a fair society with opportunities for all, not stigmatising those who happen to be on benefit.  Looking at why people are having trouble getting work or finding affordable housing.  Tackling low wages and high childcare costs.  Fighting discrimination in the workplace and the jobs market, whether against older workers or people with disabilities.

But what we will not do is put the most deprived at the front of the queue when it comes to making savings.

 Sometimes people ask us what difference we have made by being in government in the area of welfare.   In some cases we can point to damaging policies that were announced and that we got reversed, such as the plan to cut people’s housing benefit by 10% after they had been unemployed for a year.   In some cases there are things that the Conservatives wanted to do which we blocked before they happened.  Of course, because they never happened, people don’t know how hard we had to work to stop them.

So it is fortunate – in a way – that we no longer have to tell people what the Tories might have done without us to moderate some of their more extreme voices.   Because they’ve told everyone last week from a conference platform in Birmingham.   We heard of plans to deprive young people of the ability to live independently of their parents.  We heard of plans to cut the welfare cap to a level which will make more areas of London no-go areas for poor families unless they can get a Council house.

And most of all we heard that whilst the Tories can find money to cut the income tax bills of people on double the national average wage, their first port of call for savings was a two-year freeze on the incomes of the poorest people in the land.

Colleagues, I can tell you that this is not the Liberal Democrat way.

Yes, we have had to make difficult decisions during this Parliament to reduce the rate of growth of benefits spending.   But as we go forward with deficit reduction we are clear that it is time now for those with the broadest shoulders to bear the biggest burden.

Two years ago, George Osborne told the Conservative party conference that we should “never balance the budget on the backs of the poor”.

Well, I agree with George!

That’s to say, I agree with what the Chancellor said in 2012, not with what he plans to do in the next Parliament.

Our starting point for further deficit reduction has to be those who have done best as the economy recovers, not those who have missed out.   It may be that further difficult choices will have to be made in the area of benefits spending as with spending on other departments.  But this should be the last resort, not the first place to look.

So colleagues, I believe we have a strong story to tell and a real vision to share with the British people.

We can tell them about promises kept, delivering a fairer state pension for women and bringing millions of people into workplace pensions for the first time.

We can tell them about reining in the extremes of the Tory party, making sure that where cuts had to be made we protected the most vulnerable, and supported a positive vision of reform that would simplify life for claimants and enable more to return to work.

And we can tell them about a Liberal Democrat vision of a society built around opportunity, where the life you lead isn’t shaped by what it says on your birth certificate.

These are the values that we will take forward over the coming months and years, and I thank you for your part in getting us this far and taking the message out to our nation.

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  • Eddie Sammon 5th Oct '14 - 9:24pm

    Unfortunately, it’s tax deferral, not tax relief, so Webb is creating double taxation anomalies. The tax relief that needs to be cut is the 25% tax free lump sum, which is a real relief.

    I was warming to Steve Webb, but his policies and rhetoric worry me. He picks fights he can’t win.


  • Eddie Sammon 5th Oct '14 - 11:00pm

    This article is like a horror scene, where I close my eyes, peek at the content, and then quickly close them again out of fright.

    He is repeating the lines from pensions miss sellers who exaggerate the tax relief that pensions receive. As my comment says above: he is equating deferral with relief. I still manage pensions (but only for friends now), so I know how this works.

    If pensions tax relief is going to be taxed based on misinformation then MPs pensions should also be attacked.

  • Robert Wootton 5th Oct '14 - 11:18pm

    As a pensioner with a part time job, my state pension is added to my wage and PAYE is calculated on the total. I, and I think many others in my position, would want the State pension to be tax free.

    This would ease many people’s financial difficulties and also perhaps reduce indebtedness and stimulate demand in the economy. It would also be Fair.

  • Eddie Sammon 5th Oct '14 - 11:23pm

    To be super fair it is partly tax relief, if you defer it to a time you are a lower rate tax payer, which a lot do, but it is still wrong to take the full figure as relief.

    I find it quite scary that Webb is in charge of the UK’s pensions. We should remove him and if not then shine a light on MPs pensions.

  • Eddie I see your point. Had not thought about it in that way.
    The only people who can gain are those who get higher rate relief on contributions and pay standard rate when taking their pension. ie Not the super rich, generally the self employed who may have an occasional good year but are usually taxed at standard rate.
    The state could even make a profit in the long run. A cash flow issue for the Chancellor.

  • Eddie Sammon 5th Oct '14 - 11:41pm

    Thanks Hugh. I don’t mean to be too harsh, the system is massively complicated and it is hard to find the right words to describe it briefly.

    I think rather than complicating it further we should just tax the super rich more cleanly and easily, rather than means-testing everything from bus passes to tax reliefs to make sure the rich don’t get them.

  • David Evershed 6th Oct '14 - 1:58am

    There is something in what Eddie Sammon says.

    However, it is complicated by the pension contributions which initially get 40% rax relief are then invested in tax free pension schemes for up to 50 years. This is a very large benefit even if taxed at 40% when the pension is drawn compared with paying tax at 40% before the pension contribution is invested.

    So there is a big benefit in deferring the tax compounded by the many years the deferred tax is invested tax free

  • So for the first time ever, all contributions will be valued equally, with a year spent in caring role earning you just as much state pension as a year running a FTSE 100 company. That’s Liberal Democrat values in action.

    This is not really true is it if the carer gets a full years credit and pays no NIS the FTSE100 member historically was probably contracted out but still payed a high amount of NIS that year contracted out results in a year not entitled to state pension one paid in one never the one who never gets the money the one who did is penalised

    My other point is I agree that pension tax relief should be the same for all regardless of income or tax % paid that is fair

    NIS should be merged with tax stupid idea having two when the state does not save the money raised

    Many pensioners may disagree but I also think that NIS should be paid by us as well

    The idea LD had about heating and tv benefit being taxable spot on better still include it in the basic pension

    Bus pass should be a figure called travel and again awarded to all but taxed much fairer

  • Andrew Colman 6th Oct '14 - 12:53pm

    Steve Webb is right, this £37 billion is a bsurd. State benefits should be there to help the poor, not the rich.

    Eddie is correct to a point that some of the tax is deferred, but only some. The deferral enables the payer to keep the money and earn interest (which would otherwise go to the government). In Addition , when the taxpayer retires, he/she will pay tax on some of the money at a lower basic rate than he/she would have paid, also he/she is likely to die long before the same amount of tax would have been paid had the btax been paid up front.

    I favour limiting tax relief to the basic rate and to a contributions ceiling of say £10000 PA, To compensate for lost deferrals, could consider raising the higher rate threshold for pensioners.

  • Andrew Colman 6th Oct '14 - 12:58pm

    A question for Steve Webb

    I like his changes in general but have one issue.

    What happens when a disabled person who due to diability has been unable to work all his/her life, reaches retirement age? Does he/she get a pension or is just allowed to stave?


  • Eddie Sammon 6th Oct '14 - 1:32pm

    Andrew, I’ll just answer quickly, considering Steve Webb will be busy and I know about pensions too. Disabled people get national insurance credits, so they aren’t just allowed to starve, is the short answer.

    More spotlight in general needs to be put on national insurance credits – they were recently cut for childcarers, who also get them, who predominantly tend to be women. I wasn’t absolutely against the idea, but I didn’t like the way it was done on the sly. I only noticed it doing a pensions forecast for a family and suddenly the child carer was getting hit more than before.

  • “We spend something like £37 billion a year on tax relief for pensions ”
    No we don’t spend money on tax relief, I’m a little surprised that Jedibeeftrix and others didn’t pick Steve up on this misleading slight of hand; these are monies that HMRC either didn’t collect or accidentally collected which it shouldn’t of and hence is repaying.

    Also note that Steve only gives a total figure for income tax relief given to all register pensions schemes omitting to mention the NI rebate on employer pension contributions [FYI: ]. Given firstly his figure doesn’t appear in the HMRC documents – I would assume he is using a forecast for 2014-15, and secondly the example he uses, it would seem he wants people to think that HMRC are giving £37 billion of tax relief to higher rate tax payers who are making pensions contributions from their net income.

  • @ Simon Shaw

    Thank you I did know contracting out is ending my real point is that the people who this affects from 2016 until all go through the system and die will be in the case of those who had contracted out like the FTSE 100 person even though they paid NIS and the carer got a free contribution stamp the contracted out lost out

    After 2016 the new pension contributors would be far more equal it seems unfair saying this is progress now when really it’s only for people starting to contribute or at least can acquire the full 35 years of contributions

    It is not my goal to say the policy is wrong just not really fair on those who effectively paid NIS and contracted out as they lost out

  • Andy Robertson-Fox 6th Oct '14 - 7:34pm

    “All State Retirement Pensions in payment to pensioners living outside the United Kingdom shall be subject to annual uprating by the same percentage rate as is applied to such pensions payable to pensioners livingiın the United Kingdom”.
    These are the words of Steve Webb when in opposition.
    Sadly for one pensioner in every twenty-five there is still no triple lock, just a padlock. He has reneged on this commitment for the last four and a half years by condoning the frozen pension policy; only now he has exacerbated the problem by incorporating the policy in Clause 20 of the Pension Act 2014.
    To uprate the pensions of pensioners who live in the UK, in EEA countries and some sixteen or so other overseas countries but not to do so in others, includıng, for example, Commonwealth ones like Australia and Canada, when each has contributed to the NI Scheme on the same terms and conditions as everyone else when workıng is discrimınation…no ıfs and no buts.. and against some of the most vulnerable of socıety..
    How can it be right for a UK citizen who retired on a full pension in 1982 after a lifetimes work in the UK to still be gettıng the same amount now as she did then….just GBP28.50.a week….and all because she lives wıth her family in Canada? Had she moved to the USA then automatic index linking would be paying her the rightful amount of GBP113.10 per week . Is thiıs, Mr. Webb, what you call a “…concrete example of the Liberal Democrats taking action in government to deliver what we promised in opposition”? .
    And I won’t even mention the scrapping of the widowed spouse’s allowance based on the late partner’s NI contribution and which has torpedoed the retirement plans and budgetting of so many soon to be as well as current pensioners and for who it is too late to take remedial action…..

  • George Morley 6th Oct '14 - 8:51pm

    Dyeve Webb says that it also means recognising that some groups don’t need extra help from the state, such as the small minority of pensioners who pay tax at the higher rate, and therefore withdrawing winter fuel payments and free TV licences from this group.
    What he does’nt say is that it means recognising that some groups like the minority frozen pensioners that live mostly in the Commonwealth countries and others around the world who,make up just 4% of all pensioners who have paid their way throughout their working life and now are disadvantaged and discriminated against having done no wrong should be given pension parity as Andy Robertson-Fox has said.
    These people have worked through recovery from the war and paid off the war loans with most having done regular or National Service for the country but are now abandoned.
    There is no valid reason or justification for this policy which is purely a government regulation which is immoral and causing hardship and broken families and poverty which is a reflection on the Members of Parliament themselves and particularly the Pensions Minister who should be working for the pensioners and not voting with the millionaires.
    The Prime Minister, the Treasury and the DWP have a lot to answer for in respect to this discriminative policy.
    There is no place to hide Mr Webb . Freeloading on other countries is not the British way. Denying pensioners despicable and if you have any conscience at all you will do the right thing by them. Pension parity worldwide !

  • George Morley 6th Oct '14 - 8:53pm

    Apologies for the incorrect spelling of Mr Webb’s name at the beginning of my comment but you have no edit facility.

  • Jane Davies 7th Oct '14 - 7:00am

    Steve Webb says….. We need to work through the details, but in my view the next Government will need to address this longstanding unfairness.
    How about making the above apply to the frozen 4%…remember them do you Steve? The state pensioners you have deserted and never talk about? The state pensioners who never get annual cost of living increases just because of where they live? Even though they have paid into the NI scheme for decades. Remember them do you? They are the state pensioners you pledged to help if you ever became pensions minister by saying this was UNFAIR and an ANOMALY? Shame on you for not only turning your back on them, some of whom have a pension of less than £20 a week, but you have made sure this discrimination and injustice continues by including clause 20 in the new pensions bill. Nothing but a national disgrace and an embarrassment to the UK’s world wide reputation.

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