Putting your staff before your pension scheme

From today’s PensionFundsonline……

UK Pensions Minister Steve Webb has announced a consultation on the transfer of individual pension pots – and offered a few possible solutions to the problem

Currently, many UK workers build up individual pension savings with different employers and in different schemes, leading to fragmented and uneconomical saving arrangements.

Speaking at the NAPF Trustee conference, which took place in London this morning (06.12.12), Webb outlined two options to help individuals avoid accumulating numerous pension pots. He stressed that the consultation would be a “genuine” one and welcomed other solutions.

“It is one of those consultations where we haven’t made our mind up yet,” the Liberal Democrat MP joked.

One solution outlined by the Minister was to link the pot to the worker. This would mean it would move jobs alongside the member. However, one possible downside would be if a worker moved from a company with a good pension scheme, to one which had a scheme which just adhered to the minimum requirements.

“If you go from a good scheme to a not-so-good scheme, are you going to come back and sue me in ten years’ time,” he said, adding that he wouldn’t “fancy that very much”.

Another solution would involve ‘stranded’ pots being defaulted into a third party scheme or Super Trust specifically designed for that purpose. Whether there would be one such scheme or trust, or multiple ones, Webb said he was open to suggestions.

“Should the pot follow the person? Should there be a default where you change job and like some sort of magnet your money goes with you unless you actively say that it shouldn’t?” asked Webb.

There is another solution but it falls into Frank Field’s “thinking the unthinkable”. Here it is.

We offer “safe-haven” status, to NEST, NOW,People’s Pensions ,Legal and General’s, Standard Life’s , Zurich’s and Freinds Life’s mastertrusts . These become the supertrusts we operate in the UK and they have priviledged status like the providers of 3G licences.

We set up a claearing system with the aid of the Australian “Superchoice” which enables all of the early auto-enrollering (eg large) employers to offer all the supertrusts alongside their nominated scheme.

As people move from job to job, they simply re-register their supertrust with the new employer,

The state pays for the clearer to extend service beyond the trialist early enrollers so that people are able to have contributions from their new employer paid into their existing mastertrust.

Each employer’s payroll clears contributions, via Superchoice, to all “safe haven” supertrusts.

The £20bn of legacy DC is cleared into mastertrusts other than where guaranteed annuity rates apply (including GMP). The legacy is boosted by a one off 10% enhancement in the transfer values offered by the insurers …provided the transfer is applied for by the end of 2017 (by which time NEST is open to transfers).

Insurance companie with more than a 10% differential betweeen the transfer value and the nominal value of the DC pot (eg more than a 10% transfer penalty) are forced to waive the remaining charges. In return for doing so they are granted an exemption from class actions arising from their over-pricing pension contracts prior to the introduction of Stakeholder Pensions.

It will only be as a result of decisive action that we can sort out our legacy DC problem, give people a guarantee of a pension for life and restore confidence in pensions and oluor Government’s capacity to govern them.

This will of course mean that employers will no longer differentiate themselves by the quality of their pension scheme (usually a bogus boast at best). Instead they will be differentiated by the quality of the pension covenant (eg a combination of the level of lifetime employer cointributions, the education to staff on what makes for good outcomes and the provision of a proper At Retirement Service to turn pension accumulation into the best decumulation).

If this hasn’t chilled your bones, you are like me a hopeless idealist but someone who can see a bigger picture than the hopeless hubris attaching to most Corporate DC schemes and their managers and sponsors.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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