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Are John and Norma right – are we facing the end of mass-retirement?

henry tapper

The weekend has seen an extended conversation between those looking to “lockdown” pension schemes and those looking to cut them some slack. For pensions, the problem is not just the fear of weakening sponsor covenants but the ongoing cost of Qualitative Easing which has driven interest rates so low they make de-risking an existential  risk to sponsors.

A point made succinctly by Ros Altmann

Ideological positions need practical solutions

Where John Ralfe’s position is weak, is it does not identify what would happen if it were followed. John seems to disregard all calls for a statement on the consequences of the actions he would have us take.

 

John’s tweet is a favorite of Paul Lewis but unlike Paul, John does not provide solutions to people’s problems (which may explain him having around 2.5% of Paul’s following on twitter).

The elegance of de-risking flounders when we try to find an alternative once we have closed the tap on open and indeed closed defined pension schemes. Where do we go from there?

 

The hope for the future is that DC will take the strain. The Pensions Regulator clearly thinks that individual DC will democratize pensions giving DB like pensions to the masses.

But this falls at the first hurdle. Employers are not prepared to fund DC pensions only to see the proceeds scattered on the winds of pension freedoms. If pensions are to be democratized  (through auto-enrolment) it will be at nowhere near the level offered by DB accrual, or even the reduced benefit of the PPF

Add to this , the mess that is presented by tacking on pension freedoms as the tail to the DC donkey and you can see why there is such despondency amongst those who think deeply about pensions (including John Ralfe)

Life after pension lockdown?

It is easier to consider the post DB world through the long-lens offered by Norma Cohen. It presents a dystopian picture of a retreat in the 21st century from the optimism of the last.

This is what is offered by auto-enrolment and the current funding levels for workplace pensions. It is what the Pension Regulator’s recently published strategy document is about.

It is a solution that relies on us working longer with increased reliance on state pensions for those on low incomes and a drawdown on accumulated wealth from the mass affluent.  But as Norma points out, it is not a vision that suggests those in their later years will have much security from a lifetime of work.

Norma presents the logical conclusion of the position laid down by John Ralfe and followed by the Pensions Regulator in its proposed DB funding code. It is a stark lockdown world, far removed from what most of us expect from our pension system.

Norma Cohen
John Ralfe

Should we settle for less?

It was a weekend when many of us realized that for an indeterminate time, we will have to settle for less. We may not return to the freedoms we enjoyed till this spring for some time to come.

There are many, Ros Altmann and Michelle Cracknell are among them, who argue that we must continue to live something close to a normal life, for all the worries of a creaking health system. We must, they argue, find a way to deal with the pandemic that sits within business as usual.

It is right that we have leaders who will not settle for less but strive to hold on to a vision of pre-Covid normality just as it is right that those arguing against the DB funding code, strive to retain the three pillar pension vision that underpins the OECD’s view of retirement funding the developed world over.

That the two discussions happened at once , over the weekend, may not be coincidental. I think they are linked – at least they are for me. It would be interesting to hear the views of others on where they stand on this.

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