Those clever folk in Brussels have come up with the idea of extending MIFID to cover UK pensions, says this article. My old chum Matthew Connell of Zurich is concerned that this might stop the sale of workplace pensions to employers “on a default basis”
All complex products can only be sold to a consumer either through an advised sale or through a sale following an ‘appropriateness test’.
Oh dear, and there’s me thinking that employers should be entering into long-term investment contracts on behalf of their staff without the faintest idea of what they are doing. After all , that’s how people bought personal pensions, endowments, PPI and how employers bought interest rate swaps as part of business loans.
Of course it makes absolute sense for the 1.2m employers and 5 million workers joining these schemes to be defaulted into the pension scheme arranged for them by some super buyer like the National Association of Haberdashers or the local accountants or ZYZ payroll services. After all they know all about how pensions work , what separates good from bad and what might be considered appropriate for their members/clients/customers.
Now I know in these new enlightened times we must consider any meddling from Europe as a “bad thing” but might there not be just a little bit of sense in requiring employers setting up a long-term investment contract for their staff, to take a little time to work out what they are buying and why? And might it not be a good idea for someone to write down for the benefit of the staff whose take home pay will reduce, to know just what they are investing in and why it was considered suitable by their employer?
Might someone not consider being nudged into a financial product without any understanding of what that product is , akin to the process by which people were suckered into that list of financial products (to which I could add default annuity products)?
Might that same person not ask , in years to come , why no-one stopped to ask
what the hell’s going on here – what exactly is this work place pension?
No!
We are now so in love with non-decision making , that we’ve agreed that large numbers of non- heterogeneous employers can be herded into pens and defaulted into workplace pensions they know nothing about – and this is good.
A couple of nights ago I watched a film called Boom Bust Boom in which – like groundhog day – I saw banks blow up over and over again. It wasn’t the same explosion, each explosion was separated by history. South Sea Bubble – Wall Street Crash – Credit Crunch.
But what linked all of these events was that they sprung from the supreme over-confidence of those running the banking system that
“this time it’s different”
This time is no different from the defaulting of people’s funds into inappropriate personal pensions, endowments, annuities, PPI. Defaulting employers into workplace pensions without them having a clue about what they are doing is simply an extension of a failed process that will have precisely the same consequences- ambulance chasing, claims, restitution and ultimately a breakdown of what is currently going well.
If auto-enrolment is to continue to go well, we need to provide the same help on workplace pensions to the SMEs and micros who know nothing about pensions as we do to the larger employers who know nothing about pensions.
All that changes is the delivery mechanism, You either deliver advice and guidance to employers properly , or you run the risk that – like all the other mis-selling scandals that preceded this, the default sale will come back to bite you.
That is why there should be no carve out of workplace pensions, why people buying into workplace pensions should know what they are doing and – ultimately – why Brussels – on this – is right.