There are no short-cuts in pensions, there are no silver bullets, easy answers, no lottery wins, no free alpha. There’s just a lot of hard saving backed up by good governance , cost control and sound investment strategy.
Pete Seeger, the American folk singer, composed “Where have all the flowers gone” to express his fatigue at the cynicism of the America he had fought for in the Korean war. He ends the chorus with the refrain; “when will we ever learn”. If you’ve got 119 seconds free, listen to him sing it at the end of this blog.
Financial services seems condemned to repeating its mistakes. We have a capacity to dress the mistakes in different clothes but the mistake is the same. Until we design our products, our conduct and our attitude around our customers, we will find ourselves reversing up cul-de-sacs of our own making.
When will we ever learn?
Last week I had a number of conversations with people who have been entrusted to establish auto-enrolment programs for small employers. The people I talked to were accountants, the managers of payroll bureaux and the designers of auto-enrolment software.
The common assumption is that as long as the workplace pension integrates with payroll at the commencement of the process, everything will be alright (compliant).
One firm of accountants is adopting NEST as the default, another a vertically integrated master trust managed by a national IFA, another has no guidance for the employer other than to google workplace pensions.
When will we ever learn?
We have taken short-cuts so many times. We did it with pension transfers, we did it with PPI and now we are doing it with workplace pensions.
We forget that the money we are extracting from people’s pay packets is being invested for the financial futures of our nation’s workforce. They are consenting to this because they have been told, and they believe, that the investments will secure them a proper retirement. They are putting their trust in their employer to choose the right investment, for the provider to do the right thing and for Government to well – govern!
If an employee were to ask the boss how he chose the investment of a lifetime of contributions, what would you- the boss -say?
I took advice from my accountant who said…they’d spoke to the people who run our payroll and they said, they’d spoken to some financial advisers and they said…
They said what?
They said that if I couldn’t make up my mind, I should use the default- which is exactly what we did…
So you took advice?
Yes, we took the advice…
And where’s the record of that advice?
We were assured that the workplace pension we were using complied with the Government’s qualifying rules, so we didn’t ask for reasons why they selected the pension they did.
I thought that you were selecting the pension?
Well technically yes, but we didn’t want to get involved in something we didn’t understand.
And now it’s gone wrong!
Well I know, and I’m having words with our accountants, and the are having words with the software suppliers they used and we are all having words with the financial adviser.
And what are they saying?
They’re blaming the Government.
I saw that program on the TV about this..
The one that said I could join the class action? You know what it means if that action succeeds?
I’ll get compensation?
You’ll get compensation but I’ll be paying the price in my insurance premiums and we’ll have to get new accountants and a new payroll.
You should have thought about that when you set this up
That was a long time ago and there were different managers then…
Yes, but I’m still working for you , and I’ve paid into this pension every month for 20 years
But we’ve learned from their mistakes and in future it’s going to be ok.
When will you ever learn?
Ladies and Gentlemen, it doesn’t have to be like this. For the cost of a new tyre on his Jag, your boss can choose the right pension , not just for his payroll, but for you.
If he chooses to spend a couple of hundred pounds, he can get the information he needs to take his decision, a full report on what and how he chose and a certificate signed by an actuary confirming that he has followed a process with due diligence.
Don’t settle for less, don’t take short-cuts and don’t risk your workers and your company’s future.
Now for that video!