I hear that the MfP (the new acronym for Minister for Pensions) is going to be setting out her priorities for the remainder of this parliament and asking for input. If I were her, I’d follow my instinct as she’s got an MBE for getting policy right at the highest level and what she gets from the pensions industry will be a “ball of confusion”.
The five years her predecessor had at the role saw one significant piece of legislation PSA21 which missed pension superfunds . When you open a consultation , you have an obligation to follow up. The 2018 consultation on pension superfunds resulted in TPR being asked to manage superfunds with “regulatory guidance”
This has led to the approval of one hamstrung superfund which has taken on no business (and looks no more than an ante-room for buy-out.) She has a duty to kill or cure pension superfunds – they cannot be allowed to fester.
If I was Laura Trott, I would use the current discussion between Government , the BOE and PRA, to promote occupational pension funds (including superfunds) as the means to supply productive capital to regenerate Britain’s productivity. This means dampening down TPR’s fervour for short-term self-sufficiency, reconsidering risk-sharing and focussing on the dilemma faced by millions over 55 considering how to use their retirement savings to supplement or replace workplace earnings.
The levers for pensions to help rather than hinder the big picture recovery are in place, we need to switch from the short-term horizons that trustees now have whether they are promising a defined benefit or a pension pot. She is helped by the end of quantitative easing, the return of inflation and – sadly – the stalling of improvements in mortality.
She has two consultations which we are promised will be opening shortly. The first is on value for money, which is overtly a means to help consumers make informed choices about who manages their money but covertly is a project to consolidate the long-tail of failing occupational DC schemes into a few commercial master trusts , sizeable enough to provide productive capital. But so long as the ambition of such schemes is no more than to deliver a pot to savers , trustees will continue to de-risk pots to cash and bonds in short order. We need a VFM standard that the public can get behind, that means dispensing with the flim-flam and focussing on outcomes. Outcomes are measured by the standard of living that pensions bring, and the societal benefits of funded pensions should be part of that equation – we won’t have much fun retiring on a burnt out planet
The second consultation is around the decision savers currently have to take to turn pots to pensions. This is considered too hard a decision to take without advice and the solution that’s currently in place is to streamline the decisions into four investment pathways which can be explained by a meeting with Pension Wise. This is the state solution to the issues created by the pension freedoms, but the wealthy are urged to go private and take advice. The FCA has launched a thematic review into the advice given – seen as the first big test of the new Consumer Duty. What is needed isn’t more choice but a strong default.
The previous MfP advised us to look to Australia for solutions. What characterises the Australian Governmental interventions is their brutality. Value for Money is based on outcomes and Super providers at the bottom of the league table have to pack in the game. The Australian Government is now requiring Superannuation Funds to offer a default means to convert pots into retirement income (or else).
These two upcoming consultations have so much in common , I think of them as one.
I hope that the new MfP will focus on these two issues and be equally uncompromising. If she listens to the pensions industry , the public will continue to have to deal with the ball of confusion we have today.
My final desiderata is that Laura Trott, considers her duty to ensure the state pension and benefits are functioning properly. The problem with Pension Credit take up is not solved but the DWP has worked hard to recruit the private sector to improve awareness of PC as valuable in itself and as the “door to more”. The problems with the administration of the state pension, she has a more intractable problem which can only really be solved by massive investment in new technology. I suspect that this will not be prioritised, which will result in kicking the problem down the road. Like the problems with long term care.
Laura Trott does not strike me as being satisfied with being a junior minister. She has something of Angela Raynor in her (a former shadow pensions minister) and I expect her too to be sitting on a front bench before too long. Right now she’s managing a lower league side but other departments are watching her. So her tenure of this job looks like being short – I expect it be sweet.