I don’t normally hob nob with FTSE 30 Chairmen so when I met one at a party over the weekend I hit on him about pensions…this is the nub of the conversation
Me-What do you know about auto-enrolment?
Chairman-My pension person says I need to opt-out!
Pension people will tell you that the Chairman was probably an eligible job holder (he was) and he had to be enrolled (he would be) and that the only way to protect his massive pension entitlement was to opt out of the company pension scheme (it was).
Three things are happening right now which will promote the profile of workplace pensions to those providing the strategy and governance of our quoted companies.
- We will begin to see the impact of the abolition of the normal retirement age – eg normal people will find they cannot afford to stop working
- Workplace pension saving will now become the normal thing for people to do as a result of auto-enrolment.
- Dis-satisfaction with the poor outcomes from UK DC plans will become a major issue at the senior end of the boardroom (as well as with the workforce).
Taken together, the focus on pensions will shift from “concerns over the balance sheet and cash calls from DB trustees” to concerns over the adequacy of the company’s on-going pension provision.
There are two things that rock the boat of Chairmen and CEOs. The first is risk – so far pension risk has been associated with the guarantees offered to staff through defined benefit schemes. If “pension de-risking ” programs” coupled with substantial deficit reduction payments see DB risk slipping down the corporate risk register, then expect to see DC risk replacing it.
Ironically, companies that regard the success of their workplace savings plan in terms of its capacity to retire its staff will be faced with the same issues as they face with DB plans. Either the DC plans themselves do the “heavy lifting” or the risk reverts to the company who may find themselves faced with Hobson’s choice, employing an increasingly geriatric workforce or paying them off with at retirement “bungs”.
With that prospect , the focus of senior executives may well turn to getting more from the DC plans themselves and if they go down that route, they will quickly find some pretty startling conclusions. “Collective Pensions in the UK“, David Pitt-Watson‘s forcefully articulated call to action, could become a rallying point for forward looking CEOs and Chairmen, keen to increase the value of their DC plans.
Which is why it is important that those of us who have our heads buried in the minutiae of pension consultancy, take some time to think about the bigger picture. While we are wedded to the certainties of pensions we cannot deny that in a parallel pensions universe on the other side of the North Sea, pensions are organised and governed in a radically different way. While in the UK senior management are currently “worryingly detached” about pensions, in Holland they appear to be “seriously relaxed”.
By “seriously relaxed” I mean that they are both deeply serious about maximizing the outcomes of the pensions they participate in, but relaxed that from time to time these pensions, market-linked as they are – will suffer set-backs (as they are this year).
But just as risk is a primary driver in the strategic thinking of a CEO or Chairmen, so is reward. At a strategic level, the reward of delivering proper pensions most of the time, outweighs the risk that there may be some setbacks along the way. The Dutch are seriously relaxed enough to accept that their system of CDC, while not without risk, delivers more than by way of pension reward than can ever be expected of our individually based, over-protected system of guaranteed annuities.
If we want to get pensions back on the agendas of the Chairmen and the CEO’s of our leading companies, we have got to promote better solutions than those we currently employ. We need to get our Chairmen and CEO’s comfortably relaxed about pensions. That means coming out of the darkened room where we’ve been huddling with the CFO‘s and engaging with new and fresh ideas that restore confidence in pension planning, not just with these CEOs and Chairmen, but with the millions of people their companies employ.
Pensions should be an integral part of a company’s strategy and their corporate governance. Auto-enrolment will require pensions to be taken seriously and it is now up to all of us who make a living from advising on retirement issues to make those who are serious about strategy and governance, comfortably relaxed.
I hope that my next conversation with a FTSE 30 Chairman is a little more comfortable, a little more relaxed and a lot better informed!
- Maybe consumer cynicism about pensions is right.. (henrytapper.com)
- Scale and scalability- why L & G is the cuckoo in the Nest. (henrytapper.com)
- So you want better pensions? (henrytapper.com)
- Auto-enrolment: 11 million workers to join company pension schemes (guardian.co.uk)
- Plumber’s Pensions are safe with Penny Plumb (henrytapper.com)
- “Ambitious” pensions can save you from staging a disaster (henrytapper.com)
- TESCO extra pensions (henrytapper.com)
- Play Pen golf day – The Photos they did not want you to see (henrytapper.com)
- The pensions revolution arriving by stealth (telegraph.co.uk)