I’m off this morning to meet the FCA, hear about the detail on the Budget’s proposals on the New Annuity Guidance Framework and have a chance to deliver my tuppence worth on what should happen.
This week my mind has been focussed on what is delivered to those retiring , how and by whom.
My firm, First Actuarial, delivered some 3000 one on one interviews last year with staff of our clients, helping them to understand how their workplace pension schemes dovetailed with state benefits and private plans to provide income and capital in later life.
Our micro-business, Pension PlayPen, rates the capacity of the providers of GPP and the operators of master trusts , to deliver meaningful choice to those claiming on their retirement funds.
And of course, I’m thinking about myself and how the new rules announced in the Budget will help me and those around me.
So I’m taking this and the subsequent sessions with the FCA very seriously. I have been canvassing opinion from my colleagues and speaking to IFAs and other advisers in London and Leeds to sense the appetite to provide this guidance.
As I’ve mentioned in previous blogs, I’ve found a lot of frustration among advisers. They were good at telling me what they didn’t want (the Money Advice Service doing the work, conscription and being told what to do). They were not so good at describing a straw man of what one of these Guidance Guarantee Sessions would look like.
What has been said several times is that there needs to be a new default solution to replace the annuity. No one knows what a default should look like , but judging from our experience with accumulation defaults , most people agree that it should
- Be good enough for most people (suitable to needs)
- Not stifle choice for people who want to go their own way
- Be painless and require as little intervention from the member as possible
- Be subject to particular regulatory scrutiny.
If these are the high level principles to which most would subscribe, the devil will be in the detail. It took some time for the DC accumulation market to settle into the lifestyle consensus. While there has been some tinkering around the edges, the fundamental principle of a glide path to annuitisation moving from equities to gilts, has prevailed for over ten years.
I have in this time heard little praise for lifestyle (despite it having protected many thousands from the collapse in gilt yields). On the contrary, I have heard much criticism of defaults as blunt sticks which lead people into complacent non-decision making and poor outcomes.
The only real alternative to the lifestyle default to have been presented to the market is Dimensional’s individual approach – which they call Managed DC . This is an advance on lifestyle as it aims to use data to determine individual strategies to target desired outcomes.
It has not met with great success (despite being the top-rated investment strategy on Pension PlayPen and with First Actuarial).
Which suggests that for all the market’s grumbling, it – like the IFAs I talked with- is better at knowing what it doesn’t want, than exploring new ideas.
Which begs the question- who will lead? Who will stand at the front and say “I know what I want and I’ll show you why I want it”.
Leaders cannot get far- unless they carry people with them, the world is full of deluded fools who think they speak for the people but speak only for themselves.
The task of the FCA is to find leadership. It may not lead itself but it may be able to find someone who can bring around them a consensus and deliver the new ideas that are needed.
In essence, that is what George Osbourne did in the budget. It sticks in my craw to say that he was right, but he was.
Now it is time for those of us with an interest in making this happen, to show the leadership that is needed.
Which is why I must get into my suit and get on the train.