The Liberal pension spokesperson – the very shadowy Stephen Lloyd, has labelled the Conservative Government “incompetent” for shelving Steve Webb’s pot follows member initiative (which should have arrived in 2016).
Guy Opperman, with the weight of the Government’s massive research into this area (ho ho ho), has determined that “now is not the right time” for such an initiative. This is “not so subtle” code for “don’t bother me with this, I have enough on my plate”.
Guy does indeed have a few matters on his plate, like sorting out the rules for Royal Mail and others to go CDC and – more importantly to his reputation – to make something happen with this Government Pension Dashboard.
The CDC project appears to be moving in the right direction and I hear word that it may yet adopt some of the unloved DA legislation in PA 2015. If that’s the case, then CDC may have more flowers blooming in its garden than the snowdrops seen so far.
The Pensions Dashboard is doomed to failure so long as it is a Government project. The only way to make Government Pension Policy to work is to put it in the hands of Michelle Cracknell but as she is currently fighting for TPAS’ identity in the brave new world of the single guidance body, I doubt she is in any position to help.
Lovers of grand Government pension initiatives will point to auto-enrolment – but that work because the Pensions Regulator let the private sector get on with it. They will talk of NEST, but that worked because it was given a £1.2bn leg-up by the tax-payer and got extremely lucky (just how close to being a net-pay disaster NEST was, has yet to be revealed). NEST worked because of Tim Jones and latterly Helen Dean and because (for once) the DWP had a 10 year run at it.
None of which is the case with the Pensions Dashboard, which has Charlotte Clark (a NEST stalwart in charge, but the budget of a Lada to NEST’s Rolls Royce).
And so to pot follows member
The best thing to say about the Government’s policy on pot follows member, is that it has abandoned it. Government could no more direct pots to follow members than Canute could have directed the tide to reverse and keep Canute dry.
Pots will follow members when
- It is easy to aggregate
- People know the value of their various pots (not just £sd but Vfm)
- There is something worth aggregating to.
Since most of the best pension schemes are not generally open for aggregation, point 3 is very live. There are aggregators out there, ready to get your money, but frankly – how do you know they are any good?
The argument that if you transferred a DC pot , you might be putting “the Ming Vase in a boot sale”, carries some wait. But not if there was a financial equivalent of an Antiques Roadshow for legacy financial products. You do not need an Arthur Negus to spot a Guaranteed Annuity Rate, you simply need a robust process that ensures that GARs and other financial oddities are flagged by ceding insurers.
The more general argument – that there is no Value for Money measure to compare a legacy pension pot with a Pension Bee or Evestor, is more serious. People will not press the transfer button without a degree of confidence – and short of an adviser telling them what to do (and taking some responsibility for the outcome), people are not transferring “old pots for new”.
What can the Government do?
If Guy Opperman was in listening mode (as he has been with CDC), then he would go and have a chat with the people at the Treasury who conceived Pension Dashboard 1.0. This conception stopped short of a Government built and run dashboard and encouraged small, agile Fintechs to use the protocols created by Government to gather data about pots and their value (and value for money).
This work is being carried out in the institutional space by Chris Sier and his IDWG, but there is (as yet) no retail trickle-down. Opperman should speak with Dr Sier to see how the templates he is creating (to find out what we are paying and getting for fund management) could be used to find out what we are paying and getting for policy management (e.g. the vfm of the pension contracts themselves).
The Government can also shake up the FCA to shake up the IGCs to ensure that recalcitrant insurers make contract information available to organisations establishing dashboards with which people can monitor “value”, “money”, “value for money” and press the button that says “transact”.
We have the tools.
One of the oddities of pension policy is that we have – very slowly, built up the tools to allow pots to follow member. We can quite easily run dashboards and we could populate those dashboards with real-time data which could allow people to take decisions about which pots to fold into what pots!
We also have the technology, much of which has come to us from auto-enrolment. I’m talking about the application programming interfaces (APIs), which we’ve built to allow insurance and trust based record keeping systems to talk to payroll (and other) systems.
We have the understanding of slippage to know how to get at the hidden costs within funds and this can be extended to understand slippage within policies (the cost of life styling for instance). So we can tell “money”.
We have a way of measuring gross and net performance so we can check that our money calcs are accurate and that the slippage between the performance of the assets and that of the fund is in line with our slippage calculation.
And if we can measure net performance, we can assess it on a risk adjusted basis so that we can tell people on a lemons v limes basis, whether one contract is giving better value for money than another.
We can even – for those who value these things – measure the user experience of one contract against each other, so that people besotted by one platform’s support, can compare it with another’s.
Whatever happened to “pot follows member”.
Pot follows member is stuck and – left to the Government -it’s going nowhere. But the Government don’t know what its like to have multiple DC pots (they have DB pensions).
People who have multiple pots and are closing in on 55, want all their pots in one great-big-pot”, because they know about economies of scale, because they know how hard it is to manage pension freedoms from multiple pots and because they suspect that some of their legacy pots aren’t doing them any favours.
The one chink of light in the gloomy pre-Brexit penumbra, is that people like me are talking about this and that out there – deep in the gloom – people are building the kit that will make pots follow member.
I will keep writing these blogs in the hope that people will call me on 07785 377768 or email me firstname.lastname@example.org and join the swelling band.
Pot will follow member – whatever the Pension Minister says!