Pensions are hard – you cannot disrupt them into being easy

I’ve been accused of not taking pensions seriously, Hugh Pym, then the BBC’s chief economics correspondent, smiled indulgently and reminded me that the BBC couldn’t mention an organisation called Pension PlayPen (he also told me to change sex and cultivate a northern accent to get on TV).

Well Pension PlayPen has been on TV and Paul Lewis tells his listeners  that Pension Play Pen is a “lot more serious than it sounds”. We are very serious about restoring confidence in pensions, that’s what we are trying to do.

Hugh Pym – when I spoke with him in 2013 believed that NEST and auto-enrolment were the same thing. He thought that employers didn’t have a choice in the workplace pensions they set up for their staff. Around the same time, I met with Steve Bee on Bermondsey Street in South East London. I talked with him about engaging employers about pensions, Steve told me he thought that all pensions were much of a muchness. Steve (at that time) was working with accountants helping them organise themselves for auto-enrolment

The problem with a view of pensions that assumes they are all the same, is that it assumes we are condemned to make the same mistakes in the next thirty years, as we did in the past. Steve’s a little older than me but we both were involved in pensions in the eighties when personal pensions first began and we’ve spent the intervening time watching Government and industry initiatives come and go.

Until quite recently IFAs made a living telling us that pensions weren’t all the same and that they were worth their weight in gold, guiding us to the right pension. But the right pensions now appear to have been wrong. Since last month, the pensions sold by IFAs have not only had to meet a charge cap, but they have had to be cleansed of commission payments. Pensions aren’t all the same any more- there are the old ones and there are the new ones and by and large the new ones are cheaper and will burn less of our money in payments to intermediaries.

Infact, because of the competition in the market – to a large extent created by auto-enrolment, by NEST and by the abolition of intermediary marketing payments, pensions are a lot better value than they used to be and very much better suited to the needs of small employers.

Dangerously annoying talk

I am  annoyed by Steve for writing an article in Money Marketing suggesting that individuals should choose the workplace pension provider – rather than their employer.

This is why I am annoyed;

1. I do not think that Steve has changed his view “that all pensions are the same”. What Steve is wanting to do is to see choice including the choice between auto-enrolling into a pension or into a workplace ISA . Frankly this isn’t about restoring confidence in pensions, it is about dismantling pensions.
2. Steve’s vision treats employers, who are doing the heavy lifting on auto-enrolment, as platforms for a smorgasbord of financial fripperies that have nothing to do with the business of helping people retire.
3. While real efforts are being made within Government and by trustees, IGCs and organisations like the PPI and the Transparency Task Force to clean up pensions, Steve is sitting in the stands throwing rocks at the players and officials.

Pensions are very serious things. The Basic State Pension, at £155pw , has been valued at £200,000. It is more valuable than the average UK house.

Auto-enrolment will mean that most people will have private workplace pensions that should in time replace SERPS/S2P as a substantive top up to the basic pension. A few people will have workplace pensions that will properly replace their pre-retirement income.

In the meantime, huge numbers of people will be getting from the legacy of the defined benefit system which the majority of their retirement income.

The entire apparatus that supports this pension system is administered through payroll, through the Government recording systems powered by RTI – with data supplied through payroll and the majority of the money paid out at retirement continues to come from employers.

While we have lost the employer promises of the defined benefit schemes, we have retained a culture in this country which makes the employer the trusted source for pensions. Breaking that link implies that there is some other trusted source of pension knowledge and governance.

Employers reading Steve Bee’s recipe for 21st century should be shocked

With all this in mind, a change to the auto-enrolment rules to allow employees to choose where their pension funds are invested would be a very sensible move.

What is more, it would be wholly in line with the Government’s introduction of the freedom of choice regime.

It would also make sense of the Lifetime Isa, due to be launched next April, and the so-called Workplace Isa that many in the industry think will follow it soon after.

Not only would this vision cause immense strain to employer payroll (already struggling with auto-enrolment) but it presumes firstly that people want to make choices about pensions v ISA and are able to make informed choices.

99% of those members who have joined NEST since 2011 have exercised no choice over their funds (relying on the default), fund-switching is almost unheard of in workplace pensions – 6m people are sitting down with some satisfaction, knowing they are for the first time doing something about their retirement. They are busy doing nothing and loving it.

Disinformation even from the Beeb.

I am for engagement, I am for education and empowerment too. I want people making sensible decisions about their finances, saving more for their retirement and I want people to feel confident that the pensions they are investing into are trustworthy.

The BBC are running a story about pensions being at risk. It’s a shoddy piece of journalism confusing the problems with pension deficits at DB schemes like BHS with the issues to do with small (and sometimes shady) mastertrusts.

The committee is conducting inquiries into pensions automatic enrolment and pensions regulation, using the collapse of BHS as a case study.

I am reminded of my conversation with Hugh Pym. The  link between BHS and mastertrusts is that both are problems for tPR, but this irresponsible statement suggests that BHS has something to teach us about failing master trusts – it doesn’t.

So long as we make grandiose statements such as “all pensions are the same”, we frighten people into believing that auto-enrolment will lead to BHS pension deficits , or insolvent master trusts.

This kind of careless talk results from the grandiose dismissals of pensions that Steve Bee and Michael Johnson are trumpeting. If anything is likely to stop auto-enrolment in its tracks – it is this kind of rubbish scaremongering.

Pensions are boring and hard – so is work – let’s not pretend otherwise

Pensions are hard complicated things. They have to be taken seriously and people need to understand what is going on through responsible reporting and good work from regulators, employers and providers.

Steve Bee has given up on pensions

This may have been true of the world in which Steve and I grew up , but it is not true today.

Steve has a utopian vision where people know best, but we know that people constantly get financial decisions wrong (Payment Protection Insurance, pension transfers, contracting out)

The evangelists of freedom

Actually, people want to be engaged and educated, but only when there is a point.If you don’t believe me, see how many people use Money Mail, Money Savings Expert and other financial websites.

There is simply no point in committing vast amounts of money to engage, educate and empower people about their (currently) tiny pension pots.

At first sight it looks as if Steve is on the same page as me.

But he’s not. What Steve wants is to offer a financial supermarket of “jargon free benefits” which are funded by auto-enrolment contributions but have only peripheral benefit to replacing income lost through gradual or immediate retirement.

As with Steve’s new ally , Michael Johnson, the baby must be thrown out with the bathwater and we must abandon pensions , pension funds and embrace the new freedoms.

After all – we now live in the brave new world of connectedness.

I fear that this kind of talk is very attractive to those in HM Treasury and those in Government who see destabilising pension saving as some kind of brave new world.

But we have always been connected and individual – just in different ways and the fundamentals of growing old are still the same.

Disrupting pensions to improve pensions is good, but freedom for freedom’s sake is meaningless

Unfettered freedom may be helpful for employee benefit consultants, but it is deeply problematic for the rest of us.

21st century pensions

In case you need reminding, here is how we can make pensions engaging, how we can educate people and how we can empower people to make sensible decisions.

Pensions have been around a long time, and they aren’t going away just because Steve Jobs invented the ipod!

But this video works very well on an ipod, or a smart phone, or even on an old fashioned PC!