Why pensions should become a big government obsession in 2o17!


Now that’s what I call freedom!


In my article yesterday, I suggested we don’t need to change pension regulations, we need to stop looking at pensions as a threat but as a benefit.

This applies to auto-enrolment too- where employers are not engaging with pensions, but with the threat of being fined for non-compliance. We need to get beyond characterising the workplace pension as a furry animal and start wondering what benefits it is likely to bring the workforce and thus the employer.

No matter how urgent we consider workplace pensions, I suspect big government are going to worry more about our defined benefit constituency, which is eating up investable capital, restricting productivity and contributing too little to the social good.

The big government problem is institutional, but the macro issues to do with funding and investment (rather than speculation) , manifest themselves in personal behaviour.

A few years ago, our then pension minister railed against Boots for offering deferred pensioners “sexy cash” to take their benefits away. In the DWP select committee green paper, our Steve is quoted encouraging the taking of lump sum payments out of pensions.

In practice, all CETVs are ETVs relative to the CETVs on offer in 2014- all that has changed is that the sexy cash comes from pension freedoms and not from bungs from the employer.

CETVs have been accelerated by further falls in the gilt yield to the point that members can now anticipate a CETV of up to 40 times the prospective pension. We will try to forget the link between Steve  and Royal London (a major beneficiary of CETVs) – for Steve is “an honourable man”. The substantive point is that pension schemes do not benefit of shipping out liabilities to cash and nor do their member – unless that is , there is a means to replace the forsaken pension. There isn’t and most recipients of transfers run into wealth management, cash management or the pension scammer, none tend to be attractive.

De-risking pensions by turning them into lump sums is a strange way of managing a nation’s retirement problem. The looming issues of Long=Term-Care (evidenced by recent powers given to local authorities to raise council tax) are not going to be solved by pension freedom nor are the problems of extreme old age. Annuities have been prescribed to the “alternatives” cupboard but no “insurance against old age” product has arisen to replace it. The Defined Ambition agenda is currently in the same cupboard as the annuity.

All the problems that arise from the disintegration of the DB estate are problems for the 2020s and 2030s. It’s to the credit of this Government , that they are asking questions about de-risking both at the macro and micro level.

The issue of tax-reform, one that continues to buy those of us who see the current system as regressive and unfair – looks to be one for the Treasury, the issues around employer engagement – issues for the DWP. These issues of how we promote our estate of DB plans and rebuild public confidence in them, is the business of big government, by which I mean the Cabinet Office and the policy unit within 10 Downing Street.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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4 Responses to Why pensions should become a big government obsession in 2o17!

  1. Gerry Flynn says:

    It was surely “Big Government” that has led us into the mess we are in now?

  2. Brian Gannon says:

    Actuaries, accountants and government had good intentions. They wanted to protect the pensions of deferred and current pensioners in DB schemes from bad behaviour by employers, and to try and ensure that schemes were properly funded in order to secure current and future benefits. However, a succession of well-intended but frankly stupid regulations and laws have led to a situation where the cost of funding DB schemes has led to their virtual disappearance. The cost of de-risking in the short term is to make it uneconomical and nigh on unaffordable for sponsoring employers to offer further accrual. Transfer values are ridiculously high, I have just advised a member of a Barclays pension scheme to take a CETV 41 times the income given up. I have also spoken with a potential client who has been offered a TV of just in excess of £1million to give up a pension of £18,000 per year. This is utter madness. A former administrator in a life company is about to become a millionaire!! Whether or not it is moral or not to take the transfer value, this person would have to be mentally deficient not to transfer his pension when faced with such an offer. This state of affairs cannot be right. There is so much wrong with financial services legislation and regulation, I fear that politicians have caused a lot of the problems by allowing regulators to rule the roost without accountability to parliament or any higher body. I don’t know the solution any more, but I am not sure it is going to be arrived at by ignorant political intervention.

  3. henry tapper says:

    Hi Brian, I spent a couple of hours in no 10 on this and related subjects (just before Christmas).I didn’t get the impression Government was ignorant and they were listening.

    Happy new year

    • Brian Gannon says:

      Hi Henry
      Happy New Year, I am glad that they were listening to you, as you speak much good sense. The concern is that true listening is evidenced by what action is taken. So is it listening or hearing that we have seen in the past? I have no doubt at all that the intention of past legislation was to protect the benefits of pensioners and deferred members, and maybe I should not have used the word “ignorant”. Ill-informed or ill-advised maybe.

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