The Pensions Regulator has published an excellent paper outlining the current position of occupational pension schemes towards providing their members with pension freedoms. You can read it here and for its clear language, well developed argument and comprehensive understanding of the dynamics at work, I suggest you do. If you are not up to speed with all the technicalities, there is a handy glossary which I suggest you read first, otherwise you will find this table a bit of a turn off!
I do this job for a living and have, at various stages of the last year, known what all these abbreviations mean, but I was grateful for the explanation that follows
But you don’t have to be a statistician to work out that apart from one large occupational scheme (almost certainly Rene Poisson’s JP Morgan DC plan), nobody’s much interested in offering pension freedoms as in-house scheme service. Which we knew anyway-but now know officially.
The real value of the document is not in the survey, but is in the reasons (excuses?) given to the Regulator for not embracing this opportunity. Indeed, the word “opportunity” does not spring from the page. Instead the key words is “risk”.
The four key risks identified are
- Admin – DC pension schemes aren’t geared to pay pensions, let along to act as surrogate bank accounts
- Communications – DC pension schemes do not see themselves as financial advisors
- Investments – DC pension schemes don’t want to be liable for drawdown strategies that fail
- Governance and regulatory risks – DC pension schemes don’t feel competent with all this (and don’t much feel like learning)
You cannot blame DC trustees. They never signed up for any of this stuff and by and large they’d be much happier with the guaranteed benefits in payment from DB schemes, where there is precious little challenge “in decumulation”.
The Government (aka the Treasury), may be frustrated with occupational schemes but they might as well get frustrated with the insurers running workplace pensions and their IGCs who aren’t that much further down the line.
The prospect of a pension bank account is still a chimera for all but a few members of occupational schemes, even if they can transfer their benefits into a “state of the art”drawdown plan. It is the other side of the mountains as an in-house option.
The state of funk
There is a general state of funk about pension freedoms in the financial services industry and nowhere is it better expressed than here.
“There is a fear of things going wrong and claims being made against the ceding scheme, which puts the risk back on the members.”
The enterprise culture of Fintech, Robo-advice and of the aims of the Financial Advice Market Review is nowhere to be seen. Instead the dead hand of a risk based regulatory regime and of a sector that has completely lost touch with what it was originally set up to do – is everywhere apparent.
People no longer want pensions, they want a happy and solvent retirement where money is not an issue. If pensions turn out to be part of this, so much the better. We have to explore these freedoms at some point – the technology is available and needs to be applied, now however, does not appear to be the time.