Our business leaders, a unique band of not more than a couple of thousand men (mostly), have not been leading the debate on workplace pensions. While Steve Webb and the DWP have proclaimed auto-enrolment as a transformational event, those charged with ensuring its success have been rather less enthusiastic.
In yesterday’s blog I commented that there are a number of external factors that would force the new workplace pensions onto their agenda, but having to deal with pensions as a business issue is one thing, getting passionately involved in making them work is quite another.
Pretty well all strategic models are created using a simple thought progression “where are we now, where do we want to be, what are our options, what’s best”.
Follow this logic through and your answers are “bad- good – withdraw/comply/engage”, taking us to “what’s best”.
Business leaders cannot withdraw from the auto-enrolment process other than to offshore their workforce – which for the minimal business disruption of auto-enrolment, they won’t do. The general consensus is that they will “comply” with the regulations and the detailed guidance which relegates the issue to an operational risk. There has been little optimism that business leaders will engage with workplace pension reform.
We’ve seen with the Olympics this summer that a spark can catch alight a nation (with years of planning). The auto-enrolment of 11m British workers may be analogous or it may not be. For it to happen, it’s going to need the active support of those who are being enrolled but also the enthusiastic endorsement of those who will oversee its management and contribute from the corporate profits on which their success is judged.
We may well ask what the drivers for such an endorsement might be. In the USA, the 401K system works on a system of enlightened self-interest. Business leaders are given tax breaks on their pensions dependent on participation rates on their workplace savings plans (401K). In Australia, workplace savings plans are not compulsory and the engagement or otherwise of business leaders is relatively unimportant. These represent polarised extremes of engagement. In the middle we can look at our own experience and that of similar cultures – in particular the Dutch. The Dutch system looks remarkably like the UK pension system 40 years ago. Some pensions are guaranteed and some promised but not guaranteed. The success of the enterprise is based on mutual endeavour and the idea that in a civilised society mutual co-operation rather than a “for-profit” mentality is best employed to deliver social welfare.
Culturally Britain sits – for me – somewhere between the purity of Dutch mutuality and the commercial imperatives employed in the USA.
A CEO of a financial institution explained to me the motivations for his continued involvement in his business. He pointed out that further wealth was of little importance to him since he could not think of ways to spend what he already had. He had moved from an idea of self-worth based on financial security to one based on recognition and value. He wanted to see himself as having done something good, and , as importantly, he wanted to be recognised for it. The recognition would come – he is now a Lord, the self-worth is a matter for him.
We did not force people to like the Olympics, people loved the Olympics because they saw their participation as part of its success. The crowds were to a large extent what made the Olympics different. Would those crowds have come had Lord Coe and Locog not put in the hard miles in the year before? – probably not. But the leaders, the Camerons and Johnsons and Osbornes, could not get enough of the Olympics once they were seen to be succeeding.
The analogy with pensions is tenuous. We have not got the pensions infrastructure yet in place to deliver pensions to a world class standard. Our pensions could be better. Everyone who listened to David Pitt-Watson on Radio 4 last week heard how that could happen. If you have read this blog over the last two years you know that we are missing out on an opportunity to get more from our pension pounds. The opportunity exists to change pensions for the better and sooner or later one of our business leaders are going to see this opportunity as a personal challenge. It will be a leader aspiring to be a Branson or a Sugar or even a politician. The motivation will not be money, nor the common good, it will almost certainly be for self-worth and public recognition.
The difference between a Thought Leader and a Business Leader is implementation. The Business Leader makes it happen.
For changes to happen in workplace pensions we need firms like Morrisons and Tescos to stick their necks out and deliver more than could reasonably be expected to their disconnected staff. But the solutions they have devised involve taking risks onto their balance sheets that cannot sit on those of smaller and less stable companies.
The prospect of our being better at delivering pensions to staff is enticing to pension people but scary – it means us admitting that the solutions we delivered for years weren’t necessarily right, I reckon that there are too many local interests in the pension community (and I mean from consultant to civil servant) to see pensions become more ambitious from within.
But if the spark comes, as it came at the Olympics, and it catches alight the hopes and aspirations of the 11m people being enrolled, then I hope it will catch alight the interest, passion and flair of those who run our companies – the CEOs, the Chairmen, the key influencers on the Boards of our Plcs and other major employers. If these guys pick up the torch and run with it and pass it to their counterparts in smaller companies, then I see the flame of pension reform igniting in the small and medium-sized companies and I see auto-enrolling as an activity that captures the hearts and minds of even the smallest companies.
Then the phrase “I’m in” will be worth something.
The business men and women who sit at the right end of the Boardroom table are the Chairmen and CEOs. Yesterday’s blog started with an anecdote of a conversation with a Chairman of a FTSE 30 company who’s only interest in pension reform was to avoid it to preserve his accumulated pension.
I hope that I can look back at that blog as I look back at my pre-olympic blogs with happy relief. “The worst did not happen, the best did”.
For Pension Reform to take place we need not just participation, we need better delivery and to get better delivery we need to change the way we organise pensions, we need to embrace the concept of the common good and we need to deliver what is best. There will in any process of reform be some losers but “the common good” will find the right safety nets.
I am convinced that we had it right in this country. We have lost what Frank Field termed “the great economic miracle” of our defined benefit pension system but we can replace it with something as good and learn from the past to make it sustainable.
For that to happen we need some of the business leaders who now see pensions as at best a compliance issue, embrace them and make them their life’s work.
- Getting CEO’s and Chairmen “comfortably” relaxed about pensions. (henrytapper.com)
- Enrolment may double pension income – Confused.com (confused.com)
- Scale and scalability- why L & G is the cuckoo in the Nest. (henrytapper.com)
- Maybe consumer cynicism about pensions is right.. (henrytapper.com)
- New national pension scheme gets the go-ahead (confused.com)
- Workers ‘unaware of pension change’ – Confused.com (confused.com)
- Workers turn away from pensions (bbc.co.uk)
- “The Employer’s Duty” (henrytapper.com)
- Pensions system roll-out revealed (bbc.co.uk)
- Biggest pension change in 100 years – but how much do you know? (itv.com)
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