SILOS

The Pension Manager of GEC told me a great story about reward. At one time, GEC was so huge that individual companies within it would compete against each other for large contracts. Some sales teams would receive enhanced bonuses when they won contracts against (or even from) other sales teams within the Group.

This competitive spirit was great for customers though not (I suspect) for shareholder value.

I am reminded of this story when I visited the Treasury and reminded them how well the DWP have done with auto-enrolment. Instead of basking in collegiate glory, the people in the room went bonkers. I was left in no doubt that everything good that happens in pensions originates in the Treasury and that the DWP is staffed with Treasury Rejects.

This kind of departmental rivalry is great fun, except it isn’t much good for the shareholder (taxpayer) as it precludes the Treasury learning from the DWP (or vice versa).

I regard the DWP as the red squirrel in all this as (at least in pensions), they are the originators and managers of the auto-enrolment revolution, from which the Treasury (and their regulator- the Financial Conduct Authority) could learn much. I hope that good sense prevails over department rivalry and that they take on board this success (much of which is down to tPR).

MACRO

So what can we earn? In macro-terms there is much that other Government departments can learn from the auto-enrolment experiment

1. Conviction is critical; AE is driven by a universally held conviction that
   
   1. Saving is good
      
   2. The workplace is the place to save for a pension
      
   3. Compulsion is bad
      
   4. Impulsion is good
      
   5. Government intervention is ok so long as there is consensus behind the conviction
      
2. Consensus is earned not imposed; the Johnson review that Webb initiated in 2010 ensured that there was cross party support for this reform. AE was five years in the baking (an important difference from Freedom and Choice)
   
3. The opt-out is critical to achieving the consensus. Not only is the opt-out a great measure, it is the safety-valve that is maintaining consensus.

MICRO

Nudgenomics is validated by auto-enrolment, the tiny-steps philosophy, (or frog-boiling – as this blog has characterised the AE process). This approach has much in common with the way products are developed in industry, the way in which tPR are using social and conventional media, and the way in which they survey, meet and explain, is exemplary. The dialogue between payroll and regulator, exemplified by the PAPDIS project, demonstrate that Government need not be apart but can positively shape the agenda as it goes along.

In terms of outcomes, the FCA should be interested not just in how Government intervention in product regulation has been justified by the success of the distribution strategy. This is exactly the opposite of Stakeholder Pensions, where intervention in product was supposed to drive take-up.

Steve Webb was able to drive through the reforms in governance arriving in April (v1.0) and April 2016 (1.1), because of the findings of the OFT report but most of all because he has over 5m reasons why the pension plans into which the newly enrolled save, cannot fail.

NEXT STEPS

There is much still wrong, there is still a pathetic lack of engagement with pensions from all parties (employers, accountants and worst of all financial advisers). But this will come. The Regulators (both tPR and FCA) have signed up to a common code which ensures that the pension decision can be taken by employers without the broo-ha-ha of conventional advice. This, and the abolition of the usual sales incentive, has allowed the seeds of a new kind of mass market advice to germinate.

The online guidance systems embedded in payroll software, the middleware offering and the selector tools such as www.pensionplaypen.com are evidence that digital guidance can engage, educate and empower large numbers of purchasers.

At a micro level, this is perhaps the most interesting area for the FCA to explore, I hope to submit www.pensionplaypen.com to the FCA’s Innovation service, to get its views on what we can do better and to help influence their views on how Pension Dashboards can be used to help people navigate their financial way through retirement.

POLITICS

Steve Webb can rightly point to Auto-Enrolment as a major public policy success. It is not for nothing that he has been made parliamentarian of the year. But a greater success yet would be for the Treasury to acknowledge that what has been achieved by the DWP on auto-enrolment can be replicated by the Treasury in the delivery of Freedom and Choice. In this, the offices of cross-departmental mandarins such as Charlotte Clarke is critical. I am encouraged that the Treasury are using the DWP resource of TPAS and I’m pleased that they are giving people like me the time of day on issues surrounding capacity and product development.

All the same, the silo mentality that I have witnessed within Treasury is still destructive. GCE may have enjoyed the game but it did them no good. Within a couple of years of meeting the GEC Pension Manager the group had split, Marconi had gone bust and the silos had exploded. We wouldn’t want the good that has been achieved in the last ten years, to unravel in the next decade.