I’m on a panel of speakers at the Institute of Chartered Accountants of Scotland tonight. The title of our session is “averting a pensions crisis” and were it not the title of the worst album of the seventies, I’d be tempted to open “crisis- what crisis”?
If I was asked this question ten years ago, I might have pointed to the parlous state of the world economy (Bear Stearns anyone), but I seem to remember I was (at the time) promoting fund of funds or manager of managers or some such nonsense.
At that time the state pension was – to use Portillo’s word “nugatory”, DB schemes were in steep decline, auto-enrolment was still a figment of the Turner Commission’s imagination and pension coverage had actually declined from the great stakeholder experiment earlier in the decade. I think it fair to say that pensions were suffering a crisis of neglect , stemming from decades of complacency.
Frank Field’s description of Britain’s final salary pension system as “our great economic miracle” already looked shaky ten years ago. Now “final salary pension” is the financial equivalent of asbestos in your ceiling. The abolition of the MFR and the establishment of the scheme specific funding regime in 2008, presented pension actuaries and trustees with the opportunity to prove themselves. But the financial crisis and the collective funk it engendered, handed the agenda to the neo-liberal economists for whom mark to market accounting was a dogma of death to the pension guarantee.
If you could do without a guarantee from your works pension , you could do without any guarantee whatsoever, and the tax-changes of 2014 leading to the pension freedoms, marked a high watermark for Thatcher’s children.
But other forces were at work and a reassertion of centralised order was happening even as Osborne took to the dispatch box. Auto-enrolment didn’t fall over, there was not mass insurrection from small employers; the state pension triple lock has survived and will survive at least till the end of the decade. 10m new savers have entered the workforce and – with unemployment at a record low – the workforce is bigger than in living memory.
People are not opting out of pensions, though they are opting out of PAYE (gig economy).
Instead people are seeing their basic employer contributions triple within a year and by April 2019, the majority of the British working population will be saving 8% of most of their earnings.
The cost of pension saving has plummeted, transparency of costs improved, pension savers are beginning to wake up to where their money is invested and we even have – with Royal Mail, a new dawn for collective pension provision – open not just to future accruals, but to new members.
It is against all this, that I wonder if the phrase “pension crisis” is really relevant. Yesterday, I read a report from the Institute of Fiscal Studies worried about our having too much money in retirement, complaining that our pension pots were being used to mitigate inheritance tax and asking where the tax incentivisation of pension spending was paying off to the economy in general.
This is not a conversation that smacks of a pension crisis.