The idea that pensions are complicated is odd. There is nothing complicated about a series of payments made to someone from a determined date to the date they die. It is a simple insurance against penury in old age- a hedge against an inability to earn because of physical decrepitude or the languor that besets people after a lifetime of toil (depending on how you look at retirement).
Pensions have typically been paid by the state in return for contributions known as national insurance. They have been topped up by private arrangements usually organised by employers by money that would otherwise have been paid as wages. If everyone simply collaborated in this, we could have a very simple easy system and those thousands of people who are engaged in the complexities of pension’s management could all go and do something more productive.
It is often forgotten that the diversion of resources to pay pension managers, consultants, trustees, managers and all the other people in the supply chain, reduces wages. There is no overall productivity increase from paying money into pension management- it drains national wealth and does not increase it.
So it makes no sense to complicate the matter; the simpler the pension system, the shorter the supply chain, the less money docked from wages or the greater money paid as pension.
Every penny that is diverted from the main goals- paying wages and paying pensions is money wasted. Money that could have been better spent increasing the GDP or Britain. The Germans know this!
As my friends Robin Ellison and Con Keating keep telling me, the reason that pensions are so complicated is to prevent people abusing the system that supports them. The idea that a simple system would be abused is based on an awareness of the frailties of human nature.
But it is a sad truth that as soon as you put in a safeguard, the risk of theft moves on and another safeguard needs to be devised to prevent the new risk. And so regulations multiply. And every new regulation has to refer to the old regulations or else someone will find a loophole and drive a coach and horses through it.
Organisations such as the PMI have been set up to ensure that everyone knows the rules and understands what they mean in practice. The large number of organisations that attend on pensions are added to yearly. We now have competing organisations (TISA and ORIGO) looking to make sense of the complexity surrounding pension transfers. The PMI competes with the CIPP to provide exams for people wanting qualifications in auto-enrolment legislation and the FRC, DWP,TPR and IFoA battle it out to create reporting standards for defined occupational schemes to ensure member security.
We now hear that the Government is now reviewing who will have authority over whom in the Regulatory struggle over workplace pensions. Will it be the Pension Regulator, with its bias towards occupational schemes but with its brilliantly successful auto-enrolment division now making it the key regulator for large or medium employers. Or should it be the FCA which is much the largest financial regulator, but ill-equipped to understand the needs of employers and the risks associated with workplace pensions?
To people who are simply wanting to pay their national insurance, pay whatever extra they have to , to top up to get a minimum standard of living in retirement, this must seem barmy.
An ongoing struggle between regulators, trade bodies and standard setters is not helpful. We have the small matter of 1m employers to talk through auto-enrolment. Last week I attended a meeting of people intent on collaborating to make auto-enrolment work. It was uplifting. We need regulators to collaborate not compete, trade bodies to collaborate and not compete and those who set the standards on thorny issues like annuities and transfers to collaborate and not compete.