A Pensions Schemes Bill has been included in the Queen’s Speech , which lays out the legislative plans for the forthcoming parliamentary session.
This bill includes legislation to enable the pensions dashboard and collective defined contribution (CDC) schemes to go ahead.
The bill will also give the Pensions Regulator more powers to tackle employers who are neglecting their final salary schemes in favour of paying dividends out to shareholders. It will help strengthen the protection of employees with guaranteed pensions. (thanks Corporate Advisor)
This is important and it is good news. The PMI have lamented that the Bill did not include clauses on DB consolidation which would have given the green light to organisations like the Pension Fund to gobble up small pension schemes like a big plancton eating whale (a phrase unlikely to be found in the Pension Bill). Having been on the side of the plancton for some years I don’t share the PMI’s contention that this is a Pensions Bill Lite.
Nor am I upset that the Bill is not providing a charter for restitution for WASPI women, upsetting to them as the poor communication of the state pension age is.
I am not surprised to find no provision for changes to the taxation of pensions in the Bill as this stuff comes in the Budget and feeds into the Finance Bill/Act. No doubt the noise will all be about the double taxation of high earning DB members in the public sector and not at all about the low-earning members of workplace pensions over paying their contributions by 25%.
I will find out more about reaction to CDC and the Pensions Dashboard today at the posh IFA do, I’m helping moderate (somewhere in a
field hotel in Hampshire). Early signs weren’t promising, when I spoke to delegates last night – no one seemed to have heard of CDC and the pensions dashboard was “something we do already”.
Of course the IFA world is doing a good job of looking after the wealthy but I hope today’s discussion will tip the hat to the 95% of the population not currently paying for financial advice.
Why this pensions bill matters – CDC.
I was at the Pensions Regulator’s stakeholder event yesterday afternoon and bumped into David Pitt-Watson, who has done as much as anyone to champion the cause of a low-cost alternative to guaranteed scheme pensions , annuities and drawdown. We agreed that the most important sections of the CDC clauses will be those that allow the multi-employer schemes that have grown up with auto-enrolment to convert to CDC – at least in the spending phase, so people can have CDC pensions – without guarantees.
If CDC kicks off with the lump sum paid into it by members who have saved into and aggregated into a workplace pension for a lifetime, then I think the FCA has the answer to its Retirement Outcomes review. If we can make CDC pensions the default for workplace pensions then the 95% of savers who won’t be the clients of the IFAs and wealth managers I’m meeting today, will have a retirement pathway that will work.
It will work because there is enough scope within the indexation of the wage in retirement to adjust pay-outs to scheme circumstances. Only twice in the past two hundred years did Aon’s modelling predict an actual drop in pensions year to year. When you consider the types of solutions being favoured today by those claiming back their pension pots, you can see just how enlightened these clause are. Well done DWP and well done Guy Opperman.
Why this matters – Pensions Dashboard.
People lose their pensions and their doing so faster than ever according to recent research from Ipsos Mori. Pot proliferation poses an existential threat not just to the management of our retirement incomes but to the finances of schemes like NOW, People’s Pensions, Smart and NEST that threaten to be overwhelmed by the 50m abandoned pots that the DWP estimate will be knocking around by 2050.
Pension Providers cannot go on hanging on to data and money of people who they have nothing to do with. They should be making that data and money visible so that the Dashboard’s Pension Finder service can help people track down their pensions (including the £20bn + that the PPI claims is our “lost” money today).
I know that the providers are unwilling to share imperfect data but that is no excuse for sitting on their hands. Hopefully they will now recognise that the time is fast coming where they will be compelled to share the data they hold so that the money in deferred pots can be scrutinised and dealt with. If that means providers losing embedded value on back books, so be it. I suspect that overall profitability will increase once we aggregate and though many providers will be embarrassed by the shocking record keeping of their back books, that is no bad thing.
Three cheers for the Pensions Bill.
- I am pleased to see the CDC clauses included in the Bill (from what I hear they are the right clauses)
- I am pleased to hear that providers will be forced to submit to the pensions dashboard (I don’t know the detail – but the headline’s promising)
- I’m not sorry to defer the progress of the DB whales. People’s guarantees need protection and the arguments for aggregation do not appear to me to have been won.