The politics of personal pensions and pension freedoms

David Fairs argued this week for collective risk-sharing rather than personal investment pathways

I love it when a comment comes on my blog which is full on committed. Tim Simpson’s comment on yesterday’s blog about the inadequacy of Pension Wise and Government supported guidance in general, is interesting as it comes from someone with a strong political leaning, a socialist leaning. I’ve edited the comment a little – you can see the full comment on yesterday’s blog


I think you have made a very good point here, particularly for those who are grouped under your sentence ‘ For those who have very little, managing what little money comes in, means meeting bills on time’

Perhaps, for the sake of my point, we could go back to your blog of the 13th September last with the sub-heading ‘Just about managing to cope’

‘Today, round here there were long queues, especially [I was told] for diesel. The one had staff informing queuing drivers there was no diesel, while the other was restricting sale of diesel to £30/customer.

The Co-op had no milk. Funny how it has all come at once! .. Sadly all this always hits the bottom end of society and, sadly, it always will.

I suggest the Tories will always help the wealthy first because that is where they receive all their financial assistance from (Don’t bite the hand etc).

I don’t doubt that much market research has been done on why the public resist enquiring about the setting up the right pension, perhaps you already know the results?

I welcomed your point and hope that others will be able to make the necessary efforts to help guide the poorer end of the public accordingly i.e. the ones who are likely to need it most when they retire.

The politics of freedom

I haven’t seen any research on those turning down Pension Wise, I think it is more important than the research from those who turn up from appointments.

The Times echo Tim’s point that freedom is usually paid for by those on the bottom rungs of society’s ladder.

Talking of the privatizations of the Thatcher era, the Times explicitly questions links today’s problems, not to Covid or Brexit, but to  fundamental flaws in the Thatcherite privitisation process.

More than 30 years later, Britain lives with the consequences of that 1980s revolution. From buses to trains to energy, there are signs that the wheels may be coming off. Last week, two of Britain’s best-known bus operators revealed plans to merge, in a sector battered by the pandemic. The rail franchising system of the 1990s has already hit the buffers, with train lines brought back to full government control. Meanwhile, a surge in gas prices has brought dozens of energy suppliers to their knees.

One of the Tell Sid advertising campaigns from the 1980s
One of the Tell Sid advertising campaigns from the 1980s

The Times asks

Has the great privatisation experiment failed, or is the free market merely doing its job and shaking out the weakest competitors?

This blog asks whether we shouldn’t add the personalization of pensions to that list.

Unwanted freedoms

What Tim is saying is what the Times is saying. That while politically, the idea of a free market and of freedom to spend our money as we like, works well at the “point of sale”, the consequences of those freedoms are to create a more divided society with a bigger gap between winners and losers.

Ironically, one of the reasons the wave of privatizations failed is because of pensions.  British Gas. Jaguar, British Airways, British Telecom and Rolls-Royce all had (at the time) affordable pension schemes that included most of their staff. Now they have unaffordable pension schemes which deliver mainly to former members of staff.

And the cost of those pensions restricts them from competing as global players. The FTSE 100 and 250 have under performed global indices, British industry is rendered uncompetitive as Government debt is funded by DB schemes that have no choice to “invest” into guaranteed loss accounts (aka gilts). We are simultaneously starving innovation through research and development and impoverishing our futures in later life.

Why are these pension promises now so expensive? It’s because Government has allowed (even encouraged) defined benefit pensions to convert into quasi-insurance companies , guaranteeing benefits instead of sharing the risks with staff.

The system of company sponsored defined benefit pensions has been allowed to atrophy because a better system was perceived to be around the corner, a system where people participated in the management of their retirement as CIO, actuary and administrator. Personal Pensions were as much a child of the 1980s as was privitisation and like privitisation, it is taking us 30-40 years to find out they aren’t working. People aren’t interested in managing their own pensions, they can’t even be bothered to book and turn up to a Pension Wise appointment. They have been promised a pension and they haven’t got one.

The bifurcation between the pension haves and the pension “have nots”, is a direct consequence of the failure of personal pensions to replace our defined benefit system.

Pension Freedoms were the logical extension of personal pensions. When annuity rates fell, insurance companies found themselves high and dry with guaranteed annuity rates that could not be afforded from the pots they purchased. This is analogous to the situation facing the gas suppliers today.  Insurance companies had stopped issuing guarantees on annuity rates long before the Equitable Life hit the buffers. Most of the Equitable problems were with with the pre 1987 legacy products (AVCs, COMPS and 226 plans).

The new personal pensions were able to offer annuities at market rates and when market rates fell, the pots (often denuded by high charges) ended up paying derisory pensions.

The Pension Freedoms were popular because they released personal pensions (and those who sold them) from delivering the bad news – that the pensions were not going to deliver to plan.

The final intervention from Government in its pension revolution was the creation of the Single Finance Guidance Body and its flagship product “Pension Wise”. Pension Wise was to do what annuities couldn’t, help people turn savings pots into the pension that never was. Of course this was just political make-believe, but there are many who still believe that a 45 minute telephone call can make an appreciable difference

There are now calls to make Pension Wise compulsory, because the dream that an inadequate pot can become an adequate pension when sprinkled with the magic dust of MaPS guidance. People who have been sold the idea they are in a workplace pension, are waiting for their pension to turn up and are not turning up to Pension Wise sessions (for all the stronger nudges).

And the people who are in the 50 to 60 age group are the first generation who are arriving with significant pots. These pots are now being sponsored by employers through auto-enrolment and are not being eroded by high charges (post RDI). There are significantly more people with pension pots that matter but despite this, demand for Government guidance is not accelerating. 

Could this be because people do not want their freedom to choose, that they would rather see the decision to take the “nastiest hardest problem in finance” to someone else. Tim’s point is apposite, people don’t buy Pension Wise.

Time for progress

There are progressive pension policies in the offing, which give grounds for thinking we may be returning to a world where people do not need to take impossible decisions but can have a sensible default option.

The Royal Mail CDC plan (which took another step closer to happening last week) is the obvious example. But there is now a new spirit of openness among those operating the new super-sized pensions (both DC and DB) to consider risk-sharing.

Edi Truell, who is AgeWage’s latest investor, shares with me a view that the new DB pension consolidators such as his own Pension Superfund, can start sharing risk in certain situations. Guy Opperman will be talking with the DC master trusts about adapting to take advantage of CDC regulations (which could be written around them). David Fairs, the head of policy at the Pensions Regulator, spoke last week at the WPSC about CDC as an alternative to investment pathways, the FCA , represented by Sarah Pritchard did not contradict him!

Pension Wise is not the answer to the bigger question.

Pension Wise is at 2% annual take up, it might get to 14% of its target audience eventually but it is not solving the problem of converting pots to pensions. It may be doing other things, like alerting people to not getting scammed, but until people have digital tools to find, value and combine pots, they will not be engaged or empowered to properly use their newly acquired pension savings. Pension Wise will remain a bit player, a bandage on the sore of a failed experiment called “personal pensions”.

Personal pensions will remain popular with the financially adept and for those who like to put their affairs in the hands of financial advisers. But personal pensions have and are failing those with lower levels of financial capability and lower income.

It would be wrong to say that these people have had pensions taken from them – coverage of DB pensions rarely extended to all staff and most low-earners did not have the privilege of working for a company or Government agency which offered even a DC pension. The wholesaling outsourcing of supply teachers, NHS orderlies and other non-core staff to the likes of ISS, Adecco and other umbrella companies lost millions DB pension rights and even today, many such workers have no access to any kind of workplace pensions.

But it would be right to say that coverage is getting better and that is mainly down to master-trusts, which are proving a better way of providing group DC coverage than GPPs. The return to master trusts gives Britain an opportunity to return to collective risk-sharing post retirement and that is where we have a genuine alternative to the Thatcherite consensus that has run out of steam.

At 83, Norman Fowler is stepping down from leading the House of Lords

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to The politics of personal pensions and pension freedoms

  1. John Mather says:

    Viewed from a different angle The DB is the regime favoured by the wealthy and politically connected. By describing benefits in terms of income the real cost is in suppressing wages and investment in the company. The farce of total liquidity in a fund that has a 20 year plus vision benefits and encourages frequent and needless “ rebalancing” or churning. Follow the money

    Assumptions and advice were clearly wrong at the outset and schemes mis-sold. The destructive impact on British industry is true but even more destructive has been the share options for senior executives which drives short term share price ahead of long term reinvestment. The poor cannot survive and saving is accidental at best for half the population.

    We have a collective scheme, the State Pension. But at 25% of NAW not an adequate income for those who fully qualify and pitiful for many. Wealth transfer from have to have not is achieved at the contribution phase but the contributions (NI) are not earmarked fir the pension now there is a pensions scam

    The country’s productivity has been decimated by the abandonment of countless commercial agreements and then the pandemic fiasco has left this “borrow to consume” government with more debt than 1945.

    “The boy stood on the burning deck all but he had fled…twit
    Spike Milligan

  2. henry tapper says:

    I agree John

  3. Ian Neale says:

    Right on the money, both.

  4. Brian G says:

    The bigger picture is that the gulf between the wealthy and the poor is cavernous. Those in power control the media and this government is highly effective at promoting its own agenda and even more effective at denigrating opposing views. Pensions are a sideshow.
    Pension freedoms have not caused the issues of insufficient income in retirement.lack of income is caused by lack of assets. Assets of £40,000 (the average pot size) generate an income of £100 per month. it doesn’t matter if that income is from an annuity or drawdown or encashment.the shape of the income is not the issue.
    Quantitative easing has led to basically getting zero return from an annuity. Thatcher privatised public utilities.who can honestly say that our water pipes leak less,that our trains and buses offer value for money and that our telephone and postal services offer value for money? How has privatisation of energy helped the consumer?how is it right that council houses were sold at 65% discounts to tenants decimating our social housing stock? DB pensions are unaffordable because more people are living much longer and interest rates are virtually zero. The guarantees and promises designed to protect defined benefits have instead been the rope that strangled them. The average working person earns a fraction of the business leaders they work for, and pension contributions offered by employers are inadequate. So the average worker can’t afford their own desired contributions and their employer more often than not pays 3%. Pensionwise is a low cost clear explanation of someone s options. If someone has a pot of less than £40,000 the problem is that such a paltry pot provides few options for anything other than deciding how they choose to be poor.

  5. John Mather says:

    Show me where the cost of Public Pensions are costed or is that 3$Trillion black hole swept under the carpet as well

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