I recently chaired a meeting that included a panel discussion on the state of the pensions nation. The panel was made up of senior figures drawn from across the industry.
The overriding message I took away from this discussion was that, although the current government’s plans may be well intentioned, the chances of achieving all the very different objectives appear quite remote.
The sheer scale of what is on the agenda is staggering. Among the topics raised or discussed by the panel, in no particular order, were:
- The Mansion House proposals on pension scheme investment
- Small pension pots
- Value for money and Consumer Duty
- Extending collective defined contribution (CDC)
- Pensions dashboard
- Consolidation of small defined contribution (DC) schemes
- At-retirement options
- The advice guidance review and targeted support
- Pot-for-life proposals
- The future of defined benefit (DB) schemes
- Local government schemes consolidation
- The challenges facing pension scheme trustees
- The future pensions regulatory framework
That list is not a complete summary of all that was discussed but it is indicative of the issues and challenges facing the government and the pensions industry.
One could certainly add to the list the impact of the proposed changes to the inheritance tax (IHT) treatment of pension benefits.
The government clearly has investment growth at the top of its list and, in November, issued a joint Department for Work and Pensions (DWP)/HM Treasury consultation document on unlocking the UK pensions market for growth.
Given the drop in UK productivity since the 2008 financial crisis, the aim of encouraging pension schemes to invest in the UK is understandable.
However, a recent DWP report estimated the underperformance of UK equities compared with global markets at four percentage points per annum over the last 20 years, so it is easy to understand why pension scheme investment in the UK has fallen through the floor.
I suspect there will be a lot of resistance to the government’s investment growth proposals, particularly if there is any mandating of trustees’ investment strategies, and there is also a desperate need for more clarity regarding the government’s DC scheme consolidation plans.
But I would suggest what is most needed is a clear statement of the government’s priorities and delivery timetable across all the areas listed above.
The Financial Conduct Authority has promised a further consultation on proposals regarding targeted support and the advice guidance boundary. That is to be welcomed but, at this point, there is no indication as to when this new and much-needed initiative will be activated.
The regulator recently confirmed there are £567bn of assets held within just over five million Sipps. My separate research earlier last year suggested around two-thirds of those Sipps are non-advised and that over 80% of those Sipps have not been vested.
Without an agreed framework for help and support, this is a ticking timebomb for providers and investors alike.
Given the Sipp market is now the same size as the workplace DC pensions market, maybe the government should look at how it can encourage more growth in the non-workplace pensions market, too.
Meanwhile, a timetable for delivery of the pensions dashboard has finally been published. The dashboard could and should drive much greater awareness and “ownership” of pensions, which is to be welcomed. But it could also create a huge demand for a solution to the small-pots issues.
In February, an industry-wide small-pots delivery group was set up to design and implement the previous government’s preferred default consolidator model. I am unaware of what progress has been made since then.
Not for the first time, I would urge the government to reconsider and allow all such pots below a de minimis limit to be encashable regardless of age – subject to a tax charge. This would be an extension of the current small-pots regime currently only available to those aged at least 55, under which three personal pension pots (there is no limit on the number of occupational scheme small pots) of not more than £10,000 each can be commuted, with 75% of the value subject to an income tax charge.
Such a move could generate some welcome extra revenue for the Treasury, while also generating some much-needed goodwill.
The more innovative pension providers could well then consider attracting those small pots back into some up-to-date and better value pension plans. Sadly, it seems as though the previous government’s lifetime provider model proposals – also labelled a “pot for life” – have been put on the backburner, which I find disappointing.
Finding the right balance in pension strategy between fiscal and social security policy has plagued many UK governments.
At the meeting I mentioned above, we also had a fascinating talk by master of University College, Oxford, Sir Ivor Crewe on “the blunders of government”. This was from a historical perspective but it left me wondering if there is another blunder looming – the indigestion caused by the government’s huge pensions agenda and the damage it may cause to future pensioner’s outcomes, whether in workplace or personal pension schemes.
John Moret is principal at MoretoSipps
I cannot recall the exact episode’s name – a Father Ted – where he receives a borrowed car and completely covers it in dents trying to knock out a small original one…
I have been involved in pensions for around 40 years (in UK), from original S.34 where tax free cash was based upon interest rates, to Public Sector…E.g. Probation Officers, Prison Officers…
No Govt. seems able to leave the sector alone, from well intentioned yet annuity defeating ‘draw down’, to the insane and mistaken strategies of G. Brown – confusing asset values with income arising from same – the beginning of the end for FS Schemes apparently…
But… Labour iterations seem to hold the most baffling intervention awards – from being the first to charge for medical prescriptions to taxing jobs (SET & NI) to the latest and most (errm polite version) comprehensive new way forward – the last word is not my read of the intended SP…
How about doing nothing for once, or, horror of horrors… actually simplifying to three or four basic structures… Whilst this would mean actually listenting to those at the direct coal face of meeting people with pension decisions to make, surely some good can be reached?
Of course those who are savvy (& young) enough to save on commuting costs, and have a second job too, have alternative invests – bit coin, trader platforms (? is this carry trade again for retail), financial market betting, betting, and so on…
Sigh… things were so simple before Barbara Castle was let loose with SERP ideas… bit like Margaret Beckett as Foriegn Sec. who once had a long weekend caravanning in Belgium or some other mysterious land.
Her opening speech at UN HQ followed that of C. Rice.. we know two things… one had a brain and had actually travelled; and, like BC above, two of the three make my point about Labour!!
Happy New Year!!
Problem is John, politicians serve themselves and no one else
they are only bothered about following through objectives which might get them re elected in 5 years time
Pensions are just one of huge number of big projects which need to be looked at but governments are just not really interested
Yes, indeed… perhaps I, too, am guilty of amplifying the ‘far right’ just like the (then) young teenage girls asking for a national inquiry…
NGL – I was hoping for something a bit more salacious from the headline.
Simon Gallagher made a very salient point about our lamentable politicians (of all parties). They’re OK with their Top Hat pensions. The elephant in the room is – and always has been – the government reluctance to take the bull by the horns are start implementing a decent State Pension. Easier to abrogate responsibility and drive the public to fend for themselves and be at the mercy of the markets. Sure, the vested interests (the providers and advisers) are only too happy, but when you consider all the costs involved both to the administration and to the personal cost, an increase in tax instead would hardly be felt. Always assuming that profligate politicians can keep their hands off what should be a properly ring-fenced fund.