The Department for Work and Pensions got its fifth boss in less than two years on Monday evening, with Theresa May’s Cabinet reshuffle replacing David Gauke with Esther McVey as secretary of state responsible for the department.
It is the former TV presenter’s second visit to the department, after a stint as a parliamentary under-secretary and then minister under Iain Duncan-Smith between September 2012 and March 2015.
During that tenure, McVey attracted criticism for comments made in the House of Commons, when she suggested that the use of food banks was a positive sign that the country was tightening its belt.
The prime minister had originally intended for Justine Greening to take the role, but the then-education secretary turned it down before resigning from the government.
If McVey has legislative priorities concerning pensions they may well have to wait, with pundits predicting that Brexit will dominate the parliamentary calendar for the foreseeable future.
I find the whole thing quite dispiriting, that the government seems to think that pensions ministers are people they can move round
Malcolm McLean, Barnett Waddingham
But that has not stopped opposition politicians piling on the pressure. Stephen Lloyd, the Liberal Democrat spokesperson for work and pensions, challenged the new secretary to find a solution placating the Women Against State Pension Inequality, by paying each affected woman a £15,000 tax-free lump sum.
At an estimated total cost of £57bn to the taxpayer, pensions experts dismissed this idea as fanciful. But what pensions issues did they hope McVey would champion in her tenure at the DWP?
Steer auto-enrolment home
By far the biggest challenge facing the new secretary is continuing the early successes of auto-enrolment.
Opt-out rates have stayed surprisingly low since the policy’s introduction, but the phased escalation of contributions, which begins in April, could change this.
Current rates of contribution could see entire generations miss their target replacement rates badly, but raising rates quickly could be equally disastrous.
“Given the stagnant nature of wage growth and return of inflation, pushing contributions up too far and too fast would risk causing a surge in opt outs,” said Tom Selby, a senior analyst at platform and brokerage AJ Bell.
Jon Greer, head of retirement policy at Old Mutual Wealth, agreed. “McVey’s challenge is how to ensure young adults save enough for their future retirement, without putting so much financial pressure on them that they stop saving all together,” he added.
The government announced the results of their review of auto-enrolment in December 2017, introducing measures such as removing the lower earnings limit and extending the policy to 18-year-olds from the mid-2020s.
But the review sidestepped the question of adequacy, and also left experts disappointed by its efforts to include self-employed workers. “Targeted interventions” will be used to encourage the self-employed to save, which as yet do not appear to involve the behavioural nudges that were so successful for employee auto-enrolment.
“We strongly urge her to look at the possibility of a pension ‘sidecar’, a pool of money made accessible at any age in times of need,” said Greer. Mastertrust Nest is planning trials of a sidecar product this year.
Sort out the state pension
A recent report from the Government Actuary’s Department projected that the balance of the National Insurance Fund, used to provide the pay-as-you-go state pension, will be exhausted by around 2032.
Avoiding a deficit in the fund would require either cuts to the state pension, increases in state pension age, or increases in national insurance contributions.
“Based on the recent GAD report I’d suggest addressing the sustainability of the state pension system should be somewhere near the top of the list,” said Selby.
He said the increased cost of state pensions was “clearly a result of demographics, but anyone who thinks we’ve heard the end of changes to the state pension system is mildly deluded”.
Scams and cold calls
The pensions industry has consistently reproached the DWP for inaction over pensions cold calls, which can lead savers to fall victim to scams or to be duped into unsuitable investments.
Its plans to introduce a single financial guidance body were recently delayed by an amendment in the House of Lords, seeking to introduce a cold call ban immediately. Currently, the DWP says it may have to delay legislating until 2020.
“I do think that [McVey] ought to have a look again at what they’re planning to do about cold-calling,” said Malcolm McLean, senior consultant at Barnett Waddingham. “If there is a need for a ban, let’s have it!”
Stop tinkering
Industry insiders have also voiced their concern at the “revolving doors” attitude of successive governments to filling top jobs at the DWP, a policy that can be linked to the continued tinkering with pensions rules over recent years.
McVey is the 14th secretary of state for work and pensions since 1997. Guy Opperman's role as pensions minister has seen similarly short tenures since the departure of Steve Webb.
“I find the whole thing quite dispiriting, that the government seems to think that pensions ministers are people they can move round,” said McLean.
He said changes may need to be made to key areas such as tax relief, but hoped that McVey would stick with the job, building good relations with the Treasury and delivering stability to the industry.
