Is the tide turning in favour of pensions?

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As we reach the last few weeks of the year, I’ve been looking at the stories that are dominating the pension landscape and increasingly they are positive. Despite UK and global equity markets being down on the year, pensions are resurgent.

If you want a sign of the times, look no further than the USS’ Trustee’s decision to re-evaluate its scheme because employers are said to want to take on more risk. True , the controversial Test One will form part of the valuation but it is unlikely to dominate in the way it did the 2017 valuation – but the big news is that mortality assumptions are likely to have worked in the scheme’s favour and the biggest news is that the Trustees are challenging the gloomy approach taken by the Scheme’s actuaries and insist on a  more balanced view on the future.

The USS may not be Britain’s largest funded scheme for long, the PPF continues to thrive, despite it having a relatively quiet year in terms of new casualties arriving at its door. The noise of a Johnston Press pre-pack may have deafened us to the low levels of pension failures in the year as a whole. While the PPF has been quiet at its front door, it has continued to prosper in terms of funding. Self-sufficiency is nearer, levies lower and the likelihood that the PPF can become an engine for growth in our economy (rather than an indicator of decline) has increased dramatically.

The FAB Index, the method First Actuarial uses to measure overall scheme solvency with reference to best estimates, continues to show that Britain’s DB pensions are in much ruder health than some financial economists would have us suppose. More and more schemes are questioning the need to buy-out and mark their assets and liabilities to market.

CDC has every chance of happening. Though the legislation is still under consultation, we expect to see it appear in a Pensions Bill next year and for schemes to be established in the next decade. It has taken longer than it needed – it took Royal Mail to agree to return to “open pension” status for it to happen, but it looks like a new kind of collective pension will be around soon.

Symptoms of a change in the weather?

It is very hard to see change happening, when it is happening around you. People who read my blog are caught up in pensions and find it hard to see woods for trees.

My partner – who has a sense of humour described the CDC consultation as “an unnecessary distraction from GMP equalisation”. Though the baleful hangover of decades of administrative lethargy is still upon us (witness the failure to address the net-pay anomaly), there is a sense of “can-do” about pensions that encourages me.

Nowhere is this stronger than in the demands of ordinary people for better information delivered digitally through some kind of pensions dashboard. 200,000 people got off their backsides and signed a petition demanding better. They will undoubtedly get better, though there is a debate to be had as to whether “better” means open pensions or a new iteration of what we’ve got already. Whatever better means we are likely to see simpler statements – easier digital access and most importantly of all – a way to find the pensions we have lost.

Auto-enrolment was the start of it. I believe it got pensions its mojo back. What is happening now is because we’re all in. Royal Mail and USS have made pensions something you talk about in the pub. Even the dark cloud of last year’s pension transfer disaster, may yet have a silver lining. People are now questioning whether wealth in retirement is preferable to income in retirement, whether a pension might not just be what they always wanted.

That is not to say that the pension freedoms haven’t worked, for the mass-affluent they give hope of an easier to manage retirement and the prospect of protecting families through inheritable wealth. But the mass affluent are still a small part of society. Only 6% of us took financial advice last year. The silent majority didn’t and are unlikely to- unless there is a way of unlocking advice from the guidance cupboard.

I look forward to 2019 as the last year of an improving decade. Ten years ago things could not have been worse. In the midst of the financial crisis, we saw interest rates plummet and deficits soar, the means to pay pensions – the asset base – was decimated by the collapse in financial markets (equities and bonds).

Inevitably what followed was bad for pensions, we know the litany of scheme closures and corporate failures leading to scheme failures. But despite 2008, we still have a pensions system which is regrouping.

It is hard to see wood for the trees, but I think that if you took a helicopter view of the state of British pensions today, you’d be surprised at the amount of new growth you were to see – amidst the splintered remnants of the forest.

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About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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