If you buy a kettle, you look for the BSI Standard kitemark, if you get out a gas engineer – you look for the Corgi sign and if you buy fresh food you look for the red tractor.We like to buy things which have an endorsement from a trusted source.
The idea of stakeholder pensions was to kitemark pensions which reached minimum standards with such a kitemark. The idea worked in improving standards but if failed to capture the imaginations of millions. Frankly we did not want to buy ourselves the means for our retirement. Those few companies who had the resources and will to set up a new workplace pension plan, took third party advice. The advice trumped the kitemark and stakeholder pensions became redundant.
But we face an advice gap, too many employers , not enough advisers and no resource to pay big fees (when the auto-enrolment timeline passes the end of the year.
While stakeholder pensions were kitemarked for the retail investor, it looks from the DWP’s latest pension consultation, that the new Quality Standards will be targeted at the employer.
“Quality standards in workplace defined contribution pension schemes” is not going get anyone’s bursting. The document defines its scope by narrowing down those areas where standards may be applied to
Investment – default options
There is a fault in the logic here as “governance” is the decision making process that decides on and manages Administration and Investment. Having spent a plethora of papers defining good DC governance, the DWP now ask us to define “the essential features of good (DC) governance”. The answer has to focus on establishing and managing what makes for good DC outcomes (investment and administration are two factors).
The critical question about Governance is where it should be applied. Clearly we cannot have 1.2m governance committees covering 1.2m employers. Collective governance structures must emerge and these need to have consistent terms of reference and operate to certain minimum standards. It is entirely reasonable for Central Government to set down rules about how good governance can be achieved but it must first establish a coherent governance framework. I see no evidence that this fundamental question is being properly addressed. To my mind the governance of trust and contract based workplace pensions (with the exceptions of a few large employers that have already staged) should be conducted by the providers of the workplace pension schemes whether GPPs or mastertrusts. The rigorous application of minimum standards , especially a vigorous charging cap, will require employers to hitch themselves to multi-enployer trust or contract based schemes.
I do not think that the Government can properly implement or enforce minimum standards to investments , administration (or communications or decumulation for that matter). These are matters for the Governors of pension schemes. I would favour a small number of such schemes whose performance in exercising due care was measured by the Regulator as Ofsted measures the performance of schools. A degree of discretion can be applied. Certain schemes (NEST being an obvious candidate) will be managing “special need” employers while some insurers will run books of business carefully selected to create minimum operational difficulties.
The “call for evidence” limits its scope to those areas that the Government feel they do not already have answers for.
The Charge Cap on the default investment option is a matter of a separate workstream and will presumably be informed by the work this summer of the OFT.
At Retirement decision making (decumulation) , disturbingly, is not under review – the ABI’s Code of Conduct and the FCA’s thematic review into annuities seem to be “enough”. Neither however addresses the roles of trustees or employers to help members and/or non pensioned staff take decisions at the critical retirement point. (References to “qualifications in professional trusteeship [footnote page 12) suggest that there is some “knowledge and understanding” of trusteeship even at the DWP!).
However it is a useful document in that it asks us to consider DC workplace pensions in the round. There are many good things throughout and I will be responding to it on behalf of the Pension PlayPen and feeding into any First Actuarial response.
Pensions need minimum standards so employers can ensure their staff get a decent deal and so the governors of these pensions can work to clear terms of reference.
This document gives me confidence that the DWP continue to work for good and I am quite sure that it will help in the process of restoring public confidence in pensions.
Now it is important that those people who do know what good looks like, help the DWP to shape a better workplace pensions system. We all can play a part in that.