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.