Restoring confidence in pensions

2017 has dawned on a different pension landscape . There are more than twice as many employers participating in workplace pensions as at any time in British history, the stock market is at an all-time high and even bond yields are beginning to recover as we emerge from the permafrost of austerity.

We may not have achieved some of the macro-economic targets this Government set itself in 2015, but we do seem to had a leadership more ready to invest rather than pursue an abstract agenda based on controlling costs. It has been nearly a decade since the collapse of Bear Sterns heralded the banking crisis, the shards we have picked from the wreckage are lessons of trust. We are building trust from the bottom up.

The trust in financial matters has realigned itself around people and organisations who are seen to be genuinely on people’s sides. The days of trusting banks are gone, PPI was the final nail in consumer confidence, people will not use banc assurance as they did. Instead, they click the URL and see what Martin Lewis is telling them to do. Google is a more effective source of advice, even in an age of fake news. Indeed the sources of trust become the stronger, the weaker the confidence in traditional institutions.

When we look at the induction of some 7m adults into workplace saving we can only marvel. What has an employer that an insurance company, asset manager or financial adviser hasn’t. The simple answer is “trust”. We trust our employer to pay us the right amount, at the right time. To simplify the equation- employer’s run payroll and our pay packet is the most important financial item in most of our lives. If payroll increase or decrease our tax and NI, we accept it as an instrument of the law. Similarly, for 90% + of those enrolled into workplace pensions, the deduction of a small amount (less tax) into a savings account has been considered a lawful and righteous deduction (you can tell I’m going to church!).

But now we face two new challenges.

1. The numbers of employers participating in workplace pensions this year is set to increase by 700,000. We will be doubling again the significant increases of last year.
2. We will be preparing for the major test of nudging personal contributions from the low levels of today, by typically four times.

Item one is a test for payroll, item two a test for pensions. The short-term success of auto-enrolled workplace pensions depends on the capacity of payroll and pension providers to work together. I see this as a victory in sight.

The long-term success of auto-enrolment depends on winning the grudging respect of non-savers to the value of staying savers. Here the value of the workplace pension is the measure. There is precious little being done to promote the value of workplace pensions to their members – those enrolled. 2017 must see that change.

Increasing ownership of what we have!

I am pleased that the FT gave Catherine Howarth, CEO of Share Action, a platform to call for more attention to the workplace pension.

For Catherine, part of the answer is to give members more say in workplace pensions. Royal London recently created an IGC elected member from its policyholders. Share Action wish to see more and so do I. There is a great opportunity for pension providers can step up to the mark and become beacons of good government. There are brilliant workplace pensions (such as People’s Pension) with conspicuously poor governance. People’s hate me for calling them on it, but it is the job of people like me to kick arse!

Many millions of savers need some arse kicking done on their behalf!

I hope to build in the new year on the work already done by deFaqto and NEST and help create a universally accepted dataset of numbers which we can rely on test the performance of our workplace pensions. We will seek to work together with the Regulators , the Investment Association , the Transparency Task Force and with the IGCs and Master Trusts. The source of this information must be as pure as glacier water.

A third and vital component in building trust is the work that comes from Government, specifically its help in ensuring that IGCs and trustees can do, and do- their jobs! The Pension Schemes Bill is part of this, the review of transaction charges is part of this and the Asset Management Market Study is a part of this.

While big Government works on restoring confidence in DB, the little clusters of civil servants working in the DWP, Treasury, FCA and tPR on these important initiatives, are of critical importance. The desired outcomes – greater efficiency, better performance  and better pensions flow from better law and better regulation of the law. But there needs to be trust between the private and public sector, we need to deliver too. The consultations going on at present are important.

Helping to see saving as a means to spending!

Finally, we need to think beyond saving to spending. We spend half our lives learning to work and withdrawing from work, the span in the middle – our working lives, is an increasingly amorphous entity! Increasingly, our workplace retirement pots will become a means of helping us out of work without the cliff-edge trauma of a “retirement date”. The freedoms do at least acknowledge that the way we spend our savings should be shaped by us and not by the annuity purchase process.

We have now got used to the idea of freedom, but we have not seen a market development that allows people to regulate their spending in retirement according to their needs. Instead we have the polarities of “cash-out” and “drawdown”, with annuities about as relevant as the liberal democrats (I know- that’s what I am).

We desperately need an alternative to the annuity that bridges the gap between “wealth” and “subsistence” and allows those considered previously as the “squeezed middle” to plan their later life spending in an easy way.

Beyond the workplace

The majority of the Government’s agenda (the savings bit) can be achieved with the co-operation of pension providers and payroll. But the spending of retirement pots, to supplement and (we hope) exceed the value of state pensions, is not yet the focus of most in the workplace.

The key to the whole enterprise of workplace saving is to get people visualising what they are saving for. This may be as concrete as a debt-free lifestyle or as abstract as “financial independence”. The point is that people link saving to definite goals.

For unless we get people seeing these pension pots as their means to getting a decent retirement, they will not continue saving, when saving rates hike in the next three years.

“Beyond the workplace” means – to us – a confidence not just in payroll, but in pensions. Pension PlayPen has helped over 7000 employers choose a workplace pension, we hope we will more than double this number in 2017. We see the starting point for member engagement – as employer engagement. You have to start somewhere!