Bizarrely, the Chancellor is expected to use the Treasury’s Autumn Statement to launch yet another pensions consultation. I guess the DWP has run out of energy after a summer of questioning the pension industry on how they should go about this.
Avid readers will remember that when at the DWP, current Treasury boss Laura Trott decided that we wouldn’t have a pot for life pension system but instead a number of small pot consolidators which would pick up pots on a carousel, keeping the AE juggernaut on the road and helping those with small pots to have slightly bigger pots.
In the absence of a pensions dashboard (which now looks quite forsaken), the Chancellor is looking for inspiration to make our pensions savings system a little more engaging to a population who are getting tired of pot proliferation.
His brainwave is to adopt the pot for life approach prevalent in Australia, a place where DC is seen to work , largely due to it being the only game in town for the mass-affluent.
In Australia , the pot you start out with, is the pot you end up with, making pot management a lot easier and enabling a “pot portal” to replace the need for a dashboard.
The system gives greater stability to providers who have large balances per member and it offers the Superannuation system economies in terms of administration.
There are however snags, not least for payroll, who are interacting with a large number of Super funds. The pain has been eased by the adoption of “hubs” which act as clearers for contributions, allowing payrolls to pass money to providers agnostic about the destination.
And herein lies the big difference. Such a system disempowers the employer whose decision to nominate a workplace pension becomes irrelevant over time. As employees move from job to job, the core constituency of savers whose “first pot” was with a certain employer, diminishes. What is left is the equivalent of multi-culturalism with diverse pots being funded by the employer on a common basis. All that the employer has responsibility for is the contribution structure and the promotion of pension in general.
The notion of the company pension is dead
If the idea of a pot for life went ahead, the link between employer and pension outcome would be broken. Other than for the tiny proportion of savers who started and ended their saving career with a single employer, the company would not see the outcomes of the saving of their staff reflected in a “company sponsored pension”.
This is a radical shift for pension management where the triangulation of sponsor, trustee and beneficiary has been at the heart of pension regulation for a century,
What is the upside?
Like “pension freedoms”, “pot for life” is a snappy concept that makes pensions more attractive- in an ephemeral way.
If the infrastructure can be achieved, pot for life would make workplace pensions more centralised , more efficient and more able to invest in the way the Chancellor wants, in real assets that drive national productivity,
For employers, the risk of choosing the wrong pension is eliminated, the employer is only responsible for the pensions people enter at the start of their career and ownership of outcomes (and of VFM) would pass to savers. This makes sense if we have confidence that savers are able to identify value -they have at least the incentive of it being “their money”.
The wholesale clear-out of the DWP’s pension ministry (Guy Opperman was shunted off to Transport as Laura Trott escalated to the Treasury), suggests that government has decided that the DWP is not the place to get things done.
The biggest political win for the Chancellor is that – if this initiative comes from him- it is seen as the Government becoming effective. That would make a change in terms of the last 8 years of pension policy making,
Another call for evidence
The idea , despite having been consulted on endlessly by the DWP now becomes the Treasury’s. The FT is told it will be introduced as a “call for evidence” – the first of a number of steps towards legislation. The Treasury official leaking the information to Jo Cumbo and his team is reported as saying
“British workers deserve to get the most out of their pensions, so we will make it easier for employees to keep track of their hard-earned savings,” …… “Helping people keep the same pension pot will stop billions of pounds being needlessly lost and make sure tomorrow’s pensioners benefit from every penny they save.”
This looks like a rabbit that has been stuck in the hat too long. If this is a “sweeping pension reform”, I’m a Dutchman. This looks like the last post for a Government that has run out of steam on pensions and while the FT understands there may be other measures in the budget , to move the dial, this is hardly going to make the Mansion House reforms happen.