We are where we are – the social contract has been decided… not compulsion but impulsion; impulsion  into a DC pensions model that relies on the markets to deliver a second tier of pensions.

Our retirements will be funded from employer and employee contributions over a lifetime at work.

What could possibly go wrong?

1. markets –  the long shadow of a sustained market slowdown, deflation and negative interest rates – Japan
2. longevity– the black swan swims into town
3. structure – the delivery mechanism for these DC pensions fails.

If we simplified things this way then we’d have to turn our attention to these three fundamental risks– catastrophes and ask ourselves who would pick up the pieces. It won’t be the aged whose capacity to put right their financial woes in their later years is mightily diminished by – old age.

So it will have to be the rest of us who will need to underwrite old people‘s financial well-being through the collective system known as general taxation.

That is of course unless we can find an insurance against market failure, lack-swan longevity (the first person on the planet to live to 1000 has already been born stuff) and structural defects.

I don’t think we can influence markets to do what we want. I don’t think we can stop people living longer than we expected but ink we can do something about making the structure of our chosen system better.

This is how.

1. We accept the arguments laid out in “Towards Tomorrow’s Investor” that collectively we can produce 30% + better DC outcomes than individually#
2. We focus on how risk can be taken collectively to provide meaningful retirement guarantees from a market invested pension – AKA risk sharing.
3. We set up a structure for risk sharing between those who are very old and those who are less old. Let’s call this PPF II or PPF DC.
4. We build this new structure to be ready to accept the DC pots of those retiring in the second half of this decade.

This is not hugely fanciful. Of the 450,000 buying pensions on their own behalf this year , over 250,000 will buy blind and of the rest, the vast majority will buy poorly. This is a crisis waiting to happen and when the press gets its act together and reveals what is going on on the ice-flows there will be another public outcry.

For once, we have a pensions minister who is knowledgeable, dedicated and has a degree of vision. Instead of being bounced into action by an Equitable or an ASW, Steve Webb is capable of putting in place measures before the crisis occurs.

Finally there is a groundswell of opinion among those I admire in pensions, who are prepared to give of their time to focus on these problems. There are also great people within the DWP and the the Pensions Regulator who are ready to listen.

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