— Pension Plowman (@henryhtapper) November 16, 2019
I finished reading “Evolution not revolution – five years of freedom” sensing something had been missing. That something has just come to me.
No mention of MaPS, TPAS or Pensions Wise.
In its 62 pages , this excellent document does not mention MaPS, TPAS or Pensions Wise. It talks a lot about regulators but it does not mention these “arm’s length bodies a single time.
This is frankly rather more worrying for MaPS than for the “investment firms and selected other industry participants”. A year ago it would have been unthinkable for TPAS not to have contributed to this work. It is a matter of deep regret that in such a short time our public sector guidance function has been so dislocated and downgraded.
The same can be said of the other great pensions publication of 2019, the PLSA’s Retirement Living Standards. It would appear that MaPS has retreated into purdah , not just for the period of the election , but for the first year of its existence. This is deeply regrettable. As Evolution not Revolution points out , the level of engagement with pension choices in the target group for Pensions Wise and TPAS – the fifty year old +, is poor and the advantage of getting engagement very great.
Unless Ignition House are being selective with the publication of the vox-pops, I haven’t heard a single member of the public refer to MaPS, TPAS or Pensions Wise either.
If the private sector has abandoned MaPS , they are not alone. In my conversation with the FCA chair Charles Randell last summer, I sensed that he saw the future for guidance and advice in the private sector’s grasp. A former pensions minister wrote to me yesterday of MaPS as follows…”That organisation seems to have a death wish.”
This is not me making a cheap political point. It is me bewailing the waste of public money on MaPS, for the value it is currently giving. The cost of MaPS , TPAS and Pensions Wise is currently met by the financial services providers and passed on to savers through the costs they pay for pension management. We are getting poor value for money from MaPS, who are currently out of the pensions loop.
I hope that the pensions minister we have with a new Government will address this issue. MaPS must be accountable to someone, and it’s accountable first to the pensions minister.
No mention of the dashboard either
The pensions dashboard does get a brief mention in Evolution not Revolution but is dismissed for being tomorrow’s tool. This fiercely practical document is looking at what can be done now and accepts that the five year time horizon that most savers and providers are working to, cannot include something that is unlikely to deliver in that period.
Nor mention of collective decumulation
To my sadness, the concept of CDC as a default retirement option to put alongside annuities, drawdown and cash-out, hardly merits a mention. I suspect that this is in part for the stated reasons in the document – that collective decumulation does not cater for the nuances of individual circumstances, but mainly because no proper work has been done to look at CDC as a product that could be adapted for this post pension freedoms world.
The longer that CDC is focussed on the specific issues of Royal Mail, the less relevant it will seem to savers and providers. It is beholden on those who call themselves Friends of CDC to think about how CDC could be made relevant and I urge those like Con Keating, David Pitt-Watson and Kevin Westbroom to reconsider their thinking in the light of this excellent work.
Public and private pension agendas should be as one
Evolution not revolution is a work funded and created by the private sector that informs on public pension policy.
It presents a very complicated picture of savers sleep-walking into retirement.
It shows how providers have delivered the pension freedoms so far and points out what’s getting in the way of further progress.
It looks at what savers want and finds they want certainty about their savings while gaming their liabilities – health and longevity
Finally it asks penetrating questions about where next for retirement investing.
The breadth and intelligence of its research compliment the work the FCA has been doing on retirement decision making. As I said in yesterday’s blog, the report is neither as rosy or complacent as its title.
But – like the PLSA’s Retirement Standards report, it shows that the private sector is capable of responding to a change in demand intelligently and responsibly.
With the exception of NEST, who participated in the research but did not sponsor the document, the public sector had no part in Evolution not revolution. That is the document’s strength and its weakness
It is the stronger for being able to speak its mind and not the Government’s and it is the weaker because so little of this document concerns itself with what should be the Government’s pension agenda.
To prove my point by exception , there is a paragraph on page 42 where we see how a dashboard might be used to bring state and private pensions together around the PLSA’s retirement targets
Perhaps more worryingly, overall 17% of our survey respondents had no idea how much they would need, rising to 24% amongst the 55-59 year olds.
Members taking part in the depth discussions felt that spending some time thinking about income needs was very useful in framing their future decisions, and that the PLSA’s Retirement Living Standards would provide a very valuable rule of thumb for them to work out their own situation
Consider somebody retiring today. A household with two adults qualifying for the full State Pension will receive nearly £17,600 a year. They would therefore need an extra £2,400 or so of income to meet their basic needs. If they don’t have any final salary pensions or employment income, then it might make sense for them to buy an annuity with their DC savings. Assuming a current annuity rate of around 2.2% for an inflation-linked annuity from age 66 (yes, it really is that low), they would need £112,000.
The document goes on to explore other options than conventional annuities, but this is precisely the framing of the financials that ordinary people need to engage with the tough choices in the strait of Hormuz,
Revolution not evolution
As I wrote yesterday, I don’t think that evolution is enough. The derivation of revolution is from the Latin “to turn around” and the concept of linear development in “evolution”, supposes that we have made progress in pension provision over the past years.
We have of course democratised savings through auto-enrolment and improved the state pension through the triple lock and simplification. But we have lost our private sector DB accrual and with the Freedoms, lost annuities as the default decumulator.
Though we have a much greater challenge in meeting individual needs, I don’t think we should dispense with the tools of the past. The merits of collective DB pensions can be adapted to a DC world and their guarantees inherited through a revitalised annuity market.
Meanwhile , the benefits of digitisation can be brought to pensions through the provision of data at the swipe of a finger. APIs can bring our pension information together – whether the feed be from the state pension , a SIPP or a workplace plan. We will be able to locate , explore and aggregate our pension pots into a retirement plan, underpinned by pensions from state and second tier DB.
These great advances are still to come and depend on the private and public sectors working together. This means both evolving through this new technology and revolving to ideas which seem unfashionable today but worked yesterday.
Evolution not revolution, would be best “evolution and revolution”. Resolution will come from the synthesis of the two.