I have received a nice email from the Pensions Minister , some of which can be shared. It would be easy for Guy Opperman, days after getting Royal Assent to the Pension Schemes Act, to sit back. Instead I get this.
“What I am interested is the way ahead. I have spent a lot of the last 5-6 months of Covid thinking about this. I agree 100% that simplicity is everything and feel our work on dashboards, and simpler statements is taking us there”
The mail continues in similarly positive vein, explaining the difficulties of driving through his agenda for change in this “time of Covid” where “departmental working is very hard to do”. I found it touching that a Minister of State can speak with this candor to someone he has no need to speak with.
Big ticket – TCFD and the PLSA
Understandably, the big ticket item for the DWP is and should be on the stewardship of pension wealth. I’m looking forward to what he has to say in March to the PLSA. If he can be as effective on Zoom as he was in Edinburgh, days before the first lockdown, he’ll be worth the watch. Our money can help us out of the hole COVID has created in our society and our national finances and – the much bigger hole in the ozone layer which is causing our climate to change (for the worse) at an alarming rate.
Standard ticket – making pension schemes matter
But to get to a point where pensions can really matter, we need a consolidated private pensions framework where decisions can be taken in the right way by the right people. We have seen how such consolidation can happen in the LGPS which is not much better organized and able to pool money for common purpose. There is a move to pool assets backing our still huge corporate DB sector through superfunds.
But it is in DC space that there is most scope for consolidation and the DWP’s plans to require smaller occupational pension schemes to demonstrate their value or consolidate gets a thumbs up from me.
Small ticket – turning pots to pensions
I too have been thinking about how we can make dispel the miasma that has beset pensions these twenty years , turning what Frank Field hailed “Britain’s economic miracle” into an often dysfunctional system where the “haves” regard pensions as a tax shelter for their wealth and the “have nots” are told to take advice which is not available at an affordable price.
The numbers speak for themselves.
£20bn of assets (PPI estimate) are lost to their owners many of whom will relate to Andy Haldane’s comments made in 2016 and reported by the FT.
He considered himself to be “moderately financially literate” yet confessed to
“not being able to make the remotest sense of pensions”
“Conversations with countless experts and independent financial advisers have confirmed for me only one thing — that they have no clue either,”
concluding that this was a “desperately poor basis for sound financial planning”.
While pension freedoms have given individuals more control over how to invest their retirement funds than ever before, there is a lack of financial know-how among the general public, and this problem will become more acute over time. To quote Haldane from the same speech
“More of the risk associated with financial decisions is these days being shouldered, not by the state or companies, but by individuals, the move away from generous final salary or defined benefit pensions to defined contribution schemes over the past 20 years has placed the investment risk of pensions squarely on the shoulders of the individual, rather than companies”.
From our conversations, I know that Guy Opperman’s agenda is focusing on simplifying pensions through simplified statements , through mid-life MOTs and through an upgrading of auto-enrolment to what he calls AE (2.0). I don’t know the details of his plans but I know that he sees the DWP tackling the scourge of small pots that are as pernicious to people’s financial planning as small schemes to the delivery of pension dashboards and the delivery of improved ESG in fiduciary management.
My contribution is as the CEO of an FCA regulated provider of guidance. I believe that by organizing existing data we can help those entrusted to manage our pension savings make better decisions on our money, mindful of the outcomes both in terms of how much ends up in our pots and how those pots provide financial security to their owners, in later life.
I see the FCA and tPR needing to work to a common agenda focusing on the Haldane problem of “making sense of pensions”. The dashboard will be a boon but only if it is built on the principles of open banking. We need open pensions to deliver a dashboard and there needs to be a circuit breaker as radical as the 9 targets the CMA gave banks and building societies.
The idea of the mid-life MOT is a good one and Aviva show that it can be delivered through large employers who care enough. But we need to rethink how it can be delivered to make it work. We now have ways of delivering financial guidance which are hugely more efficient than we ever thought possible pre-pandemic. If mid-life MOTs are to take off, they will do so on Zoom rather than in the work canteen.
Making pensions as important as football
As for what “makes sense of pensions”, let’s try a little comparison. It the average bloke in this country paid a fraction of the attention to the performance of his pension as his football club, he’d be better off.
But while he can see a league table with his team in it, he has know idea how his pension is doing compared with other people’s money.
While the average bloke can see who’s in his team and how they are faring (through his fantasy league stats) he has no idea where his pension invested – even if it’s invested.
So the average bloke has no interest or opinion on his pension , even though it might be the difference between him keeping his season ticket or his Sky subscription in later life!
We don’t just need to simplify pensions, we need to standardize them, so that people can see pension information and make sense of it. That means making valuations easily accessible (simple pension statements), showing one pension against another (pension dashboards), giving people a window to discuss matters (mid life MOT and pension wise) and making it easy to turn pot into pension (investment pathways and ultimately CDC).
This is the agenda I want to discuss with Government, a radically simple agenda that puts us back in touch with our money, helps us understand our money matters and gives us a sense of purpose when saving for our retirement.
I’m pleased to say I’ve got a chance to discuss this with the Minister and his team early in March and I’ll be making sure the proposals i share with him are aimed squarely at the men and women who are in our pension system, but who seem so disconnected from their money.
If I was a lady reading the above, I’d reckon it “blokey”, sorry. I know women who are as blokey about football as men- but not many. I’m not going to put myself in women’s shoes and try to make something as important to women as football is to me. But I’m sure that if you are female and still reading – you can!