Ok – so it’s not a big news week for pensions , but well done Jack Gilbert of Citywire’s New Model Adviser for getting a meet with Frank Field, and well reported on what I can only call a “welcome scoop!”
Field is influential as he chairs the Commons DWP Select Committee, a group of MPs who inform DWP policy teams on what the nation considers the key pension issues.
He has been pre-occupied of late with DB pension deficits and the reasons for them. The latest black ho?le he’s looking into is at the University Superannuation Scheme about which this blog has said enough. BHS and Tata Steel have previously got the Field treatment. He is nothing if not vigorous and effective.
He is also selective, Field chose not to get involved in the Transparency of Charges debate , despite being approached by the TTF, he may have seen the FCA were already acting, the point is that he is not “rent a cause” and the Select Committee picks its issues wisely.
So what of alternative DC?
It’s a good title, collective DC is currently on the shelf so a quick re-brand is opportune. Make no mistake, what Field is getting at is precisely what this blog is getting at. That currently there is no satisfactory way to bring small pots into one collective pot and get the advantages of mutual insurance into play. I don’t need to mince my words, the old DB schemes were mutual insurers, they were not dependent on employer sponsorship, they brought people’s money together and distributed that money according to the best endeavours of trustees, as a wage for life.
A wage for life – a pension; not a sum of money in the bank or building society but a replacement income when work runs out. These are the terms of reference for ordinary people who do not lie awake at night worrying about the penal effects of the MPAA, AA, LTA and of issues of inheritable wealth.
Ordinary people work for a lifetime and then have a reasonable expectation of affording to retire. This expectation has been diminished with the demise of DB accrual but accelerated by the improvements in DC pensions and the auto-enrolment funding regime.
Alternative DC is – as Field articulates it to Jack – a means to give back pensions to pension savers who are not served well by the current regime.
Judging by the comments after Jack’s piece, IFA’s do not have much time for alternative solutions. But they should!
What is Field actually saying?
Here’s what he said to Jack.
Field is not alone, I was in a meeting with one of our largest master trusts yesterday when we were exploring exactly this. While there is not appetite (as yet) to mutually insure longevity, there is a great deal of interest in extending the economies of scale that large master trusts can pass on to savers, both as they save and as they spend their savings.
Nor should this be limited to master trusts, Alliance Bernstein has shown that through it’s Retirement Bridge, that pooling can be carried out through target date funds and that these funds can be used to pay income as well as collect it.
These are trial runs at a greater event, one that we may not see for a decade. But to get to a point where people can pour their DC savings into a collective pool and get a wage for life – is only dependent on the DWP completing the legislation that sits on the shelf and on the pension industry having the courage of its conviction.
The gain-sayers, who are extremely vocal, will of course have nothing but freedom. Freedom with the absence of direction is the playground that advisers can thrive in but they must accept that the playground is exclusive. Those with less than £100,000 in pension savings (many advisers would have this at £250k) do not get into the playground, get no advice and are forced to scavenge for best annuity rates or cobble together a drawdown strategy with little help from anyone.
Frankly ordinary people, for whom Field has spent a life of service, are getting nothing whatsoever out of pension freedoms other than the freedom to f**k their later- life finances.
To say I welcome Field’s interest in “alternative DC” is to underestimate matters! I am simply overjoyed to see Frank Field MP, without prompting , pick up on this matter. I suspect, by the terms of his engagement that he has spoken to or re-read the work of David Pitt Watson.
David’s seminal study – Towards Tomorrow Investor is now a few years old and some of the economies of that 30% saving figure are already baked into the new workplace pensions, but the bulk of them are not.
There is still the great job ahead of us of helping all the money that is saved in DC -especially through auto-enrolment to be spent and enjoyed. It is not for people to have to become their own CIO and actuary, nor for people to have to employ such people, it is for those of us in the pension industry to find an “alternative DC” that does this for them.
I more than welcome Frank Field’s words, I jump at them with the intensity of this starving man in a Food Bank.