The Department for Work and Pensions' (DWP) implementation of major pension reforms are likely to come under fire from new Minister for State for Pensions, warns Towers Watson.

The financial consultant said that while some decisions will be amended easily, others that he previously objected to are rooted in primary legislation with cross-party support.
Prior to the election, and as pensions spokesman for the Liberal Democrats, Webb took issue in particular with the National Employment Savings Trust (NEST), which is due for implementation in 2012.

Webb said the minimum default contribution rate, which is set at eight per cent of earnings between £5,035 and £33,540, was "hopelessly inadequate", and said the plans by the outgoing government to phase in the contribution rates had "no case".

He also labelled the NEST members' panel as a "glorified focus group", and attacked "the pretence that a couple of dozen people could represent the diverse interests of three to six million people".

Senior consultant at Towers Watson, Paul Macro, said any increase in the minimum contribution rates would mean a change in legislation, which he said would be resisted by business representatives. "So even if the minister wanted to do this, getting the Cabinet to agree would be a challenge. His blunt honesty is more likely to lead to a welcome change in communication strategy than a controversial change in the law.

"The Turner Commission thought Government intervention should ensure a pretty basic retirement income and then stop, leaving individuals to decide if they want to save more. That requires people to go into pension saving with their eyes open and to understand that the basic level of contributions is only the starting point. To help, Steve Webb can ensure the Government makes this message loud and clear instead of over-spinning its reforms."

Meanwhile, AWD Chase de Vere believes that a radical rethink of pension strategy is on the cards.

The independent financial advisers recommend that the current annual allowance for pension contributions be removed, with the introduction instead of a new pension allowance similar to the annual ISA allowance, suggesting a level of £30,000 per annum. This would wipe £225,000 off of the current allowance.

Tax relief on contributions should also be given at an investor's marginal rate, the IFAs said, although an added incentive for lower earners would be for a set amount of pension savings to attract 100 per cent tax relief.

"The current pension rules and regulations severely limit the benefits for many high earners to invest in pensions and do little to encourage low earners," commented Patrick Connolly, head of communications. "We need to ask ourselves exactly what a pension is supposed to do and then put in place wide-ranging rule changes to enable it to be fit for purpose."

Connolly said politicians have been playing politics with pensions for too long, resulting in a generation of people who are disengaged from the industry and a state pension that cannot cope with the burden of an ever-ageing population that is not sufficiently prepared for retirement. "This is why the coalition Government needs to start taking action now."

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