“Where are all the pension people?”
Asked an accountant at #Accountex15 on Thursday. They were elsewhere listening to Steve Webb and Gregg McClymont looking back at the last five years, a neat metaphor for the pensions industry as another accountant pointed out.
Where was Ros Altmann? Presumably getting herself with the levers of power, though she did curate a rather gushing video to Workplace Pensions Live, to make sure that the book-ending of our former shadow and pension ministers did not suggest that progress stopped on May 7th.
The next 5 years are going to be quite different. Pension freedoms present big challenges which we are only beginning to understand.
Meanwhile , insurers are reporting record volumes of direct calls, some claiming to be getting more calls in a day than Pension Wise. If the Treasury thought that PensionWise would capture the popular imagination, they must be a little worried.
Our internal stats (at First Actuarial) show huge spikes in requests for transfers from DB and money purchase schemes (both of which have guarantees). The vast majority of these requests can only be fulfilled after advice has been taken, advice is not currently being taken.
As my accountant asked “where are all the pension people”.
Pension Wise has been in Purdah for the election campaign. It could not shout for fear of influencing the debate but now it must shout,
Over ‘ere- on me ‘ead!
If people are twiddling their thumbs in the Citizen’s Advice Bureaux and in Victoria , it is doubly worrying. The calls before April were for Pension wise to be scaled up.
Despite all the noise, people are phoning the call centres of their insurers and not (it seems) the source of guidance.
In his speech at Workplace Pensions Live, Steve Webb called for more monitoring of how the pension freedoms were being used. There is little incentive for the Treasury to publish bad news, but if Pension wise is not being used, we need to know- and do something to make sure it is..
The second major concern surrounding the pension freedoms is the destination of money being liberated.
I can see a number of people benefiting. If the surge of transfer requests continues, there will come a point when the second line of defence will be broken and insurgents will pour through the breach. Money will move out of the guaranteed collective schemes into DC pots and ultimately to cash and drawdown and the odd annuity.
The beneficiaries of this will be
1. Employers, who will see scheme liabilities fall and (since the transfers are downwardly adjusted to reflect deficits in schemes) asset coverage being maintained. The net effect will be to improve the corporate balance sheet and reduce strain on the corporate P&L.
2. HMRC, who will see increased revenues from “cashing out” and further wins from the iniquitous LTA (where DC benefits are around 50% more vulnerable to the 55% tax charge.
The losers will be
Trustees, who are between a rock and a hard place, entrusted to act for members even when the “freedoms” consign them to financial loss.
Members, who will be losing on the exchange rate between DB and DC benefits (they are effectively paying off the employer’s deficit when transferring.
Trustees, who are incurring costs from their administrators for the surge in transfer value work
Advisers, who are damned if they do (advise) and damned if they don’t. If they do advise they risk fines from the Ombudsman, a loss of PI cover and the wrath of the FCA. If they don’t advise, they have reduced turnover and unhappy customers who cannot understand why “freedom” means the exact opposite
The welfare state, which is pissing its DB inheritance against the wall. The loss of these DB guarantees will be felt for decades to come.
Steve Webb knows this very well, he was powerless to stop the Department of Pension Irresponsibility and the Prince of Persuasion George Osborne when in Government. His calls for greater information on the impact of freedoms – from Birmingham- are unlikely to have greater impact
Not to mention auto-enrolment.
“Where are the pension people?” – not speaking to accountants and payroll officers for whom AE is now #1 priority, but sitting at the top of the ladder of abstraction at a two day conference in Birmingham.
The conversations that were being had at Accountex15 (in a barn in Excell rather than a cosy cricket club) were about the 1.2m employers who haven’t got pensions (not the elite employers that have).
If I was advising Ros Altmann, I would have recorded a video for Accountex15, where her attention needs to be focussed. By the look of the solutions being touted for the 2016 Tsunami, I can see little evidence that the pension industry will be ready for its big logistical challenge.
The future is fast forward not rewind
My suspicion is that the pensions industry has already gone nostalgic about the past 5 years. They will be the years of plenty, the years ahead will be the years of famine. The trouble with conferences that start and finish with the politicians that we’ve lost, is that the tone from the top is retrospective.
You don’t go forward by pressing rewind. You go forward by asking hard questions and working to get solutions.
Pension wise needs to be refocussed and made more relevant – it cannot be allowed to be a sideshow to the insurance circus.
The issues surrounding DB transfers need to be confronted and addressed, the current mess cannot be allowed to continue for long.
Solutions to the challenges of 2016 need to be being created and implemented now.
“I’m afraid we had no answers. Kind regards – and good luck! Steve.”
Steve Webb left a note to Ros Altmann in his speech in Birmingham, it was coded but significant. There were other issues – the problems of adequacy, with existing annuities with the single state pension which I will deal with in a future blog.
But the most pressing problems- those at our doorstep today, are those surrounding decision making at retirement and the explosion of employers setting up workplace pensions.
Liam Byrne’s note to his successor read
“Dear chief secretary, I’m afraid there is no money. Kind regards – and good luck! Liam.”
Webb’s subtle note left to Altmann says
“I’m afraid we had no answers”
I don’t think that much progress would have been made over the two days our pension experts spent in Edgbaston Cricket Club.