I wasn’t at the TUC Conference, having a Conservative membership has closed a few doors and I didn’t want to make some awkward by insisting. My colleague Hilary Salt spoke and the event was capably relayed by Josephine Cumbo and others. Using the hashtag in the title (or searching Josephine Cumbo) you can follow what was going on (on Twitter). These are my thoughts having done just that!
The shadow ministerial team are learning the ropes
The new shadow pensions minister is Alex Cunningham, he doesn’t say he has any interest in the subject on his parliamentary profile “he works for you”. He’s been doing the job since October and has only in the last few days been making noise.
His boss is Debbie Abrahams, the Shadow Minister of State for Work and Pensions, the re-shuffling of cabinets has seen her step into Owain Smith’s shoes.
This is, relative to previous pairings, an inexperienced team but (as everyone keeps telling me) we’ve had enough of experts, so perhaps that is a good thing.
As for policies, what seems to be coming from the left’s think-tank, is a commitment to the triple lock, a wish to extend the scope of auto-enrolment and a fascination with making members know “every dot and jut” of costs. Infact Cunningham is quoted in Professional Pensions stating that very thing.
There is little more experience in the DWP’s ministers
The Pensions Opposition is likely to clash with Government on the triple lock at some stage. But it won’t be till 2020 (as the Conservatives have a manifesto pledge in place).
Richard Harrison has expressed some concern on the burden of auto-enrolment paperwork on farmers but has said in his auto-enrolment view that he’s singing from the same hymn sheet as Labour.
All parties are making a bid to own “transparency” of costs and charges. In terms of stated policy from politicians, the picture is muddy.
The depth of knowledge within both pension teams is insufficient for meaningful debate to be had about defined benefit deficits, the role of the PPF and the detailed fiduciary obligations of trustees , IGCs and employers. That may come later, but if we continue with this parliament’s high turnover of ministers, it may not happen this term.
Change must come from within
We need to look beyond the politicians to see the philosophical fault-lines between left and right.
John Kay made a proper contribution to the debate on transparency when he asked delegates to consider behaviour not information as the way to restore confidence in pensions.
“People do not want more information. They find financial services hard to deal with. Most people want to find people they can trust. Trust needs to be rebuilt between customers and institutions through good behaviour.
What depresses me is those who work in the industry see regaining trust as a public relations problem. But what they really need to do is behave in ways which encourage trust.”
Cunningham will do well to consider this. Wedded as I am to providing better information to fiduciaries (and to members), it is how those fiduciaries and their advisers behave, that will engender trust. Frankly, I have little confidence in the majority of fiduciaries in this country, they are not up to the job – they are cronies.
Kay is pointing at people like me to change our ways. He is right. There is a problem in pensions of accountability, the transparency debate is in danger of becoming part of that debate, when I hear the Investment Association (as they did yesterday) trumpet the architects of transparency, I can see what Kay is saying. The problem is not solved till we have fiduciaries who are prepared to take on those found wanting. The problem is not solved till the conspicuous waste within the asset management industry and investment consultancy, is ditched.
By behaving in ways that encourage trust
There are three structural questions for pensions and the Labour party needs to have clear views on each
- How much is enough as a universal state pension
- How do we manage the workplace DB promises we have made (public and private sector)
- How do we encourage private savings into workplace pensions.
It is still three tier stuff, for all the huffing and puffing, the big money is in the pensions we guarantee and the auto-enrolment initiative is really just a choice that people make on how they choose to save.
The debate around the State Pension is a matter of ideology, it is a pure debate on the role of the state (and not one I’m having here!). The debate around our DB promises is strategic, do we see collectives as useful in managing second tier wealth for the mass affluent? The debate around private pensions is a debate about inclusion, including those currently excluded from DB pensions in the joys of tax incentivised retirement savings.
Put pretty crudely is what pensions policy comes down to. When it comes to 2+3 (above) Kay is pretty clear about where the left should be firing its guns
“We need to rethink how we approach regulation. A system with fewer intermediaries where there are larger and more sophisticated pension schemes would help. I think we should collapse the division between trustees and asset managers. This would knock out a lot of the investment consultants.”
Hilary Salt is firing her guns already
Hilary (like me) approves Kay’s need for structural remedies
John Kay criticises accounting disclosures, mark to market, short termism, investment consultants. Need to rebuild trust -great #TUCpensions
— Hilary Salt (@RedActuary) February 1, 2017
Specifically we need better fiduciaries and advisers
John Kay – intermediaries inc trustees don’t have interests of sponsor or members at heart -and their timescales too short #TUCpensions pic.twitter.com/P4l6MLlcGJ
— Hilary Salt (@RedActuary) February 1, 2017
The way forward for our pensions opposition is to hammer home the messages of the Asset Management Market Study, the interests of trustees and sponsors must be focussed on the member, not on the short term consequences of decisions on balance sheets or relationships with regulators.
Transparency is not an end in itself , only a means to an end, that end being improved returns for savers and investors. We cannot get better returns without better behaviour, transparency only makes it easier, it does not do the job.
Three things for the left to do
- Ensure there is no turning back from the (interim) Asset Management Market Study
- Make sure that the regulators (both FCA and tPR) are prepared to make asset managers and employers fiduciaries, working as one with IGCs and Trustees.
- Encourage long term thinking in liability management and investment strategy.
If Abrahams and Cunningham can work to that agenda, not only will they be an effective opposition to the recidivists (the natural Tory constituency) but they will be doing a proper job for the people they represent.
Is there a pensions opposition?
Yes, but it’s not (yet) in the parliamentary Labour party.
Henry, I think a large part of the “transparency” and “control” problem is that people will not accept that the purchasor/provider split, or more crudely outsourcing, is both in business terms and financially, inefficient. If you are going to, say, outsource the administration of your pension Scheme you have to realise that it will require more people than if you run it in house. It will cost you more because of the extra staff you and the supplier company need to manage the interface and, crucially very often in the pension scenario, you have less control. And, of course, you are paying to cover their profit margin as well!
On the other hand if, like friend of mine, you run a firm (nothing to do with pensions…) on the provider side, you are quids in. You have all the profits and all the aggro is on the purchasor’s side!
As for investment advisors, when I was Trustee they were always the most difficult people to deal with……
Regards,
Robin