It began with the budget and ended with an FCA probe on Zombie funds. On the way we have had an 111 page paper that provides an ongoing framework for pension governance , bans pension commission and caps provider charges on auto-enrolled pensions. Even for a sector accustomed to regulatory change, these are a lot of interventions to digest, Tom Mcphail sums up how many of us feel https://twitter.com/PensionsMonkey/status/449539580799496192
It needs an overall perspective. For once it appears that the Treasury and the DWP and their respective task-forces the FCA and the Pension Regulator, seem to be working together and producing coherent joined-up legislation.
Of all the many things that I could focus on , there are three stand-out changes which will result from the implementation of these proposals.
- A shift from selling to buying, from being told to making choices, from a captive to a free market.
- A sea-change in governance, from adviser led to fixed fiduciaries, pensions will in future be governed independent of commercial interests and for the member.
- A savage assault on bad practice, especially among insurers and their asset management businesses.
A shift to buying
The Osborne reforms in Budget 2014 have been universally acclaimed as a political masterstroke, they are not universally liked or seen as right for the country (read here), but nobody is suggesting that by allowing those with small pots the freedoms of those who have large pots, Osborne hasn’t improved the perception of pensions and the coalition.
I asked “what took you so long?”, because of the 1.5m “fallen” in the carnage of the last five years, people who no amount of reform can bring back from Zombie annuities purchased at the wrong rate, at the wrong time , often in the wrong way.
The empowerment of the ordinary person to manage her or his own financial affairs in later life according to means, fiscal efficiency and personal preference appears to me God given. I don’t want to carry an analogy of George Osborne to St Peter too far, but on this occasion he does appear to have opened heaven’s gate.
A sea change in governance
A detailed analysis of the DWP’s Command Paper; Workplace Pensions, further measures for savers is an (over) long , frustratingly repetitive but ultimately rewarding work which nails almost all the big issues that impair our pension savings.
It takes on the great vested interests, the ABI, the IMA and their distributors the advisers and shifts the power base of workplace pensions away from the distributors and to the fiduciaries. The long chapters establishing the regulatory framework for Independent Governance Committees, examining the conflicts of trusteeship within vertically integrated master trusts and establishing clear measures to ensure transparency both in the governance process and in each aspect of the performance of the workplace pension is a tour de force.
No mention here of the 31 Characteristics or the loathsome 6 DC principles, this is a new ,much simpler framework that brings the clear thinking of the FCA and deep understanding of the Pension Regulator together.
I feel at last that the member stands some hope of protection – naive as that might sound.
A savage assault on bad practice
I have not read the FCA’s paper, just reports on it in the Telegraph and follow ups as in the Reuters summary you can find on the link.
The wider point is that the insurance industry has had a kicking in these 9 days and not before time. Explicit in the the Treasury Paper and implicit in the DWP paper is a criticism of insurers not for what they have done but for what they have not done. In the case of the Zombie Paper to come, there may be accusations of malfeance but the Treasury and DWP are not after blood. They will cut off bad practice by suffocation.
Legal and General reckon on a 75% drop in annuity sales from April 2015 (and presumably a large fall in the interim period).
On our Pension Play Pen linked in group discussion board, Phil Londy, CEO of Royal London (Scottish Life) argues that the cap is an uneccessary assault on insurance company’s solvency. I am sure he is right, I am sure Steve Webb agrees. The point is that the ABI ended up giving politicians no choice, so unacceptable had their behaviours come to the general public that they had to be caged by a charge cap.
The years of putting the adviser/shareholder/board/senior management in front of the interests of the customer are now coming home to roost. I am genuinely sorry for Royal London who are doing their best to fly the flag for insured mutualism, but they are now suffering the sins of their fathers and the generations of policyholders who have paid the insurer’s bills are now catching up with them, waiving pitchforks above their heads.
So 9 days later, how do I feel. Like Tom I am a little shell-shocked, but unlike Tom, I have been on holiday, from the hills of Perthshire you get a little perspective on London and even Edinburgh. Our Government has made changes to the way pensions work , are seen and will be used.
Now it is time to put those changes into place.