The consensus from people I have spoken to , following the King’s Speech is that the Government we have today has lost its legitimacy and is increasingly looking like a marketing tool for the Conservative party at the next general election.
Most people aren’t that fussed about elections, they want the party they have to Govern in a legitimate way.
Perhaps the disenchantment from my friends and colleagues is summed up by the phrase “pedicabs before pensions” which references the King’s Speech proffering legislation to temper the behavior of City and Westminster rickshaws . I am a cyclist in those parts and can confidently say that pedicabs are not such a problem as the parlous state of much of the British pension system.
That there is no pensions bill suggests to me that that Government has not so much run out of ideas (there are 21 bills in the speech) as energy. I must admit to being in two minds about the invisibility of pensions minister Laura Trott, I had thought she might be holding herself back for a final year of parliamentary pressure. But it turns out that having mothballed the pensions dashboard, swerved taking on the thorny issue of the state pension age , that she has abandoned the framework of the Mansion House reforms to another Government.
This sends a bad signal to the private pensions industry who have committed time and resource preparing for the various measures that the Government has legislated for in the Pension Schemes Act 2021 and consulting on the projects that the pensions minister had initiated in advance of a Pension Bill this weeks.
It is also a sorry signal to the Pensions Regulator and the FCA who had the value for money taken from them by big Government in the hope that the DWP could deliver where the regulators have been seen to be failing.
The aims of the Mansion House reforms were and are aligned with the aims of those in private pensions who want pensions with purpose, both social and environmental, we want a better governed pension industry and we had expected assistance from Government.
The Government is distancing itself from its previously held position as champion of sustainability. The Kings Speech provides legitimacy for those who promote fossil fuels. The whole-hearted efforts of the pensions industry to embrace TCFD are being undermined by populist initiatives that put votes before the planet.
The Mansion House reforms put “purpose” as a fiduciary aim, it called on fiduciaries and providers to invest purposefully and it launched Compacts that could deliver with the assistance of a number of reforms envisaged by the DWP. I don’t see an end to the Compacts between pension providers or between the providers of venture capital, but the absence of proposed legislation to support them , is aligned to the general loss of purpose from Government over the past six months.
I expect there to be some assistance to these Compacts in the Autumn Statement but the key issues for pensions were with the DWP. Big Government has let us down and that is why I feel that this is no longer “My Government”.
Another casualty – the PPF
Yesterday, with bad-timing, the Work and Pensions Committee quizzed the PPF about its intentions for the future. The PPF is a success story both in its conception and its management. It wants to be more than it is, it wants to consolidate small DB plans and it has had the support of the Blair Institute so to do.
But it’s CEO is leaving and he spent his time at WPC ducking questions, It’s CIO made a good attempt to appear incompetent (I’m sure he’s not) and only the COO showed why we hold the PPF in high esteem.
If there is to be better use of the PPF, then the PPF needs to put a better foot forward than it did yesterday. The timing was awful, whatever we might have expected the PPF to do , cannot be done without the primary legislation that went missing at the King’s speech.
WTW’s powerful argument for the abolition of the PPF levy cannot be debated because there is no pensions bill to enable the small change in the levy’s operation to make this practica. LCP’s long letter to Laura Trott, published yesterday is of no import since its plan to extend the duration of its client’s pensions , depended on primary legislation for a super-levy.
As with so much else in pensions, the PPF has been disrupted and consulted upon over proposals that have been dashed. It is hard to think of how Government could have managed its expectations worse
Not my Government
The frustration that I have picked up from those I know and work with is already disseminating through the pension press.The FT has commented on the absence of Pensions from the Kings Speech,
I expect that the low but loud murmerings about the failure to produce a dashboard or a workable DB or General Code, the failure to get Royal Mail’s CDC scheme over the line or deal with the state pension age, will be amplified by the failing of this Government to put pensions before pedecycles – we will hope for better next time.
is this blog about 10 years old?
Yes I agree. I watched yesterday’s proceedings on the PPF with increasing concern and despair.
It became increasingly clear why Stephen Timms in the Chair commenced proceedings with a conflict of interest declaration concerning his own ministerial roles during the period of the establishment of the PPF (but not in 2004). What emerged was that pensions legislation post Maxwell and possibly before was entirely crisis driven and designed to protect the public purse rather than to establish a durable and robust system to protect the pension income of pension scheme members over their lifetimes
The session started with impassioned and emotional pleas on behalf of the members of both the PPF and FAS for pre 1997 benefits to be indexed under both schemes in line with the indexation provisions of the original pension scheme. This was justified on two grounds: the indexation provisions were a key defined benefit just as much as the accrual rate or the definition of pensionable salary of the pension scheme funded by their contributions; secondly UK legislation at the relevant time had been deficient and non compliant with the applicable EU Directives. It was also noted that indexation of post 1988 Guaranteed Minimum Pensions had been lost. The 1997 cut-off date was therefore entirely arbitrary and unfair, resulting in current pensions of less than 60% of their protected value in real terms causing real hardship, and the effect was both age and sex discriminatory.
Possibly remembering the impact of the “naked pensioner” protests that led to the establishment of the FAS in the first place, there appeared to be sympathy for at least non-retrospective indexation (estimated cost to the PPF of £2BN). Again Public Purse issues were touched upon – obviously in the case of the FAS by but also apparently in respect of the PPF as it is reflected in Government borrowing figures, despite the fact that it is the Members who bear the ultimate under-funding risk. However amendment to the Schemes’ benefit rules requires primary legislation and the lack of a Pensions Bill in the Kings Speech was commented, By the time any change reaches the Statute Book a proportion of the affected Members will have died.
Of personal interest, one thing that was not touched on in yesterday’s discussion on this was the position of members of a former pension scheme which was refused entry to the PPF on the basis that the scheme could buy-out at least PPF level benefits. It would seem grossly unfair that pensioners of a better funded scheme should suffer the deprivations partly mitigated for a comparable pensioner in the PPF. But who should bear the cost (of deficient legislation)?
There was less enthusiasm from the speakers for bringing pre-retirement benefits up to 90% to 100% of Scheme benefits.
The LCP proposal for an optional additional levy to bring protection levels up to 100% of Scheme benefits was rather dismissed by the PPF. They noted it would give greater reassurance to Trustee Boards that they were meeting their fiduciary duties but the effect on the Mansion House Productive Finance agenda they felt would be minimal. Their argument being the option would only be attractive to well funded schemes with a strong employer covenant who would tend to be larger schemes and already capable of managing a productive finance agenda.
Other particular points I noted:
The PPF would be content if their protection should no longer be the primary objective of the Pensions Regulator and would be happy if PPF protection became part of a more widely drawn set of objectives. Again a primary legislation matter!
The PPF consider they have now reached self-sufficiency against the 2030 target date. I am not sure of the significance of this.
On the PPF becoming a consolidator: Their case appeared to be partly based on their view that there had been a failure in the commercial consolidator market. They also claimed a very good administration service (bouquets given) at lower cost particularly for smaller scheme. More questionably, they also claimed their experience and expertise pooling investment would provide greater scope for Productive Finance investing and hence better returns.
On questions concerning the effect of the LDI Crisis, the PPF appeared to be on shaky ground. They suggested their estimates of the effect on pension scheme assets values being based on historic data rolled forward were less reliable than the ONS’ larger loss figure. A figure of £400BN was widely quoted. The long term effect of the Crisis was unclear but they repeated the discredited mantra that the reduction in the asset value does not matter if the present value of the liabilities has gone down by an equivalent amount. Surely as the PPF paying 10 million pensions, they should know that those pensions have not gone down, all that has happened is that a more bullish and hence more risky assumption has been made about the future, while the fund is left with a lower value of assets to sell to meet cash flow needs.
These were my personal views, but I thought they were worth sharing.
Sorry, I meant to add that when questioned about the levy, the PPF stated that they would be content with no levy provided they had the power to re-introduce a levy required to reflect future circumstances. Again a primary legislation matter.
“The PPF consider they have now reached self-sufficiency against the 2030 target date. I am not sure of the significance of this.”
My recollection was that we might expect the main levy to be suspended by 2030. If they’re there now (though I share your concern about a much less prudent gilts-relative assumption being used) then this would seem to increase the case for arguing that even a £100m annual levy is no longer required.
Thank you Peter, excellent summary.
I suspect the 2002-06 flurry of regs was as much about protection of Ministerial reputation rather than public purse, with Brown’s aversion to anything near to a pension scandal (given the Maxwell — Liddell — Brown (+ tax credit plunder))