Darren Say has written a very contentious article that you can read here https://www.linkedin.com/pulse/article/20141203141647-42828632-ae-pensions-insanity
Darren opens by repeating three statements on pensions
…employers don’t want world class pensions, they just want the problem to comply with AE legislation to be taken off their hands – AE Pension ‘Expert’ view
…I’d rather pay fines than pay the extortionate fees I’m being quoted by greedy IFA’s using scare tactics to get me to comply with legislation, typical of the pensions industry to rip us off again – Director/Owner of a 80 strong workforce
I don’t trust pensions, they offer poor value and charges are taken even though I’ve had no growth in over 10 years, I’d rather invest in property – Pension scheme member view
Darren’s contention is that this disillusionment is not surprising as…
” it’s not actually a world class pension product that is being sold to meet the needs of savers, but scare tactics to comply with legislation, coupled with a big fee?”
I agree with Darren when he argues that the point of workplace pensions is to deliver a world class pensions saving product.
The big idea of auto-enrolment is to deliver this world class product/service through the workplace. The trouble is that by appointing the employer to select the right pension , you are asking a lot.
The OFT are right!
We’re finding that most employers have no reason to pay attention to the pension, because they have better things to do (and no motivation to change).
Advisers are doing little to engage, educate or empower staff about workplace pensions
Advisers will advise where they get paid, they have no confidence that they will be paid to advise on the pension by an employer who is distrustful of the advice, the product and doesn’t see why it has to pick up the bill in the first place.
We cannot expect advisers to be proactive in this process, they are reactive to the needs of their clients, they neither want or have the capacity to change the world.
In order for the world to change, we are going to motivate employers to do things differently. Employers can (and I hope will) change behaviour because of pressure
1. From employees
2. From the Regulator
3. From self-interest
1. Staff pressure
My bet is that in time, enough people who pay into the pensions (the staff) will start asking some questions about where their money is going, that employers will be forced to retrofit some kind of audit trail to demonstrate they have complied with their duties.
It takes a thick-skinned employer to pay 8% of most of his staff’s pensions into a plan about which he knows or cares nothing about.
It takes a really dumb employer to admit it.
Since the cost of getting the pension decision right is pretty small and the consequences of losing the support of staff quite large, I expect to see employer pressure requiring employers to pay attention to the pension .
2. Regulatory pressure
If the Regulator was as strenuous in enforcing best practice in the choice of pensions as it was in enforcing auto-enrolment duties, things would be different.
It is a scandal that the Government’s education program has concentrated entirely on “being in” and has ignored the decision on what people should be “into”.
There will come a time -presumably after the revamp of regulation on DC plans in 2015 and again in 2016, when the Regulator turns its sites on the poor quality workplace pensions being used for auto-enrolment.
Many of the current plans still carry “toxic” features such as member borne commission. Many more have hidden charges that render them unsuitable for the mass market.
3. Enlightened self-interest
There comes a point when the major (perhaps the only) beneficiary of the workplace pension will be the person who decides upon the plan. Not surprisingly, the Regulator is worried by this state of affairs, seeing the decision as “retail”.
There is no justification for this concern. The same dynamic is at play with 50 employee companies as with 1 employee companies, neither have a clue how to choose a pension , neither have much recourse to advice and neither are prepared to pay to get the education to be empowered to take the decision.
Darren’s definition of insanity
So we have the ridiculous situation of a multi-million pound advisory industry focussed on workforce assessments, opt-out procedures and statutory communications with a pittance being spent on developing the main event – the workplace pensions on which our hopes depend.
Darren lands on the Einstein statement
Until employers stop buying the wrong kind of pensions for their staff, until staff get default product which really works or the education to take informed decisions, we will continue – insanely – to perpetuate the same mistakes.