Jeremy Hunt

Mel Stride

Nausicaa Delfas,

It is interesting that Jeremy Hunt chose to summarise his pension strategy in a letter to the CEO of the Pension Regulator. 

The letter is signed by Hunt and his DWP counterpart Mel Stride. It is a Governmental compact

The letter is a joint call to action

We collectively believe there is an opportunity for savers to get better outcomes from their pension arrangements. The time to take action to improve outcomes is now

Famously the Mansion House reforms are underpinned with what the FCA would call a “financial promotion” – if implemented , the Treasury believes they would add £1,000 pa to people’s pensions.

Much is made of the politics of pensions, the need to get the £2.9tr in tax incentivised retirement savings invested in the UK economy, but not much is said about the importance of investment to people’s individual outcomes.

People know that the outcomes of their savings are not dependent solely on the input. I have paid nothing into my major pension account in the last 12 months but have seen its value fall by £90,000 and recently recover all this value and more. I can c0unt myself lucky, I have not been invested in low risk strategies, my money is invested in long term assets which continue to grow. Others, especially those in my age group (60+) have seen their savings fall in value, some “low-risk” funds used as “investment pathways ” for people looking to consolidate their gains, fell by more than 40%.

For most people, how a fund invested in “fixed interest” could fall 40% in a year is a complete mystery, tantamount to a pension scam, but the Independent Governance Committee charged with assessing value for money, reckoned the fund had performed to expectations.

There is clearly an expectation gap between those who manage our money and those whose money is managed. The Government has a job of work to do to convince savers that their pensions should be linked to returns on markets which produce such unpredictable and counter-intuitive outcomes.

A vision based on better use of money saved

Reading the substance of Jeremy Hunt’s letter , it is clear that Government is aware that direct exposure to the world’s financial markets is not what makes for “improved outcomes”.

We learn that  “suitable retirement options for savers” result from a streamlined market of providers (a nice way of saying that most providers must be culled).

The specific measures that Hunt cites as delivering better outcomes result from a smaller number of pensions but require from Government

1. A pensions dashboard that delivers a single view of benefits and “options for access and consolidation at retirement”.  This is a much more ambitious view of a dashboard’s function than has been articulated by the pension dashboard program, if the call to action is “now” then the delivery timetable for this role is at least 3 years late
2. “One pension pot for life, -reducing the barriers to engagement and increasing their control over their pension pots”. Again the message is mixed – “for life” suggests that the pot underpins the pension as well as the saving for a pension – “the lifetime pension model”. Pot for life is being interpreted as a pot consolidator, but it is also what Delfas is calling a “full service pension” – their needs better clarity about “to and through”.
3. A strong emphasis on investing for overall long-term returns; the concepts behind “long term assets” are “better long term returns and outcomes” and “better value from the money we invest. This is a social contract between the saver, the investor and the Government and value is more than just outcome in terms of what the member gets,

I have not seen this mentioned, but it is implicit, the Government is banking on better use of the money saved, not an increase in contributions . All three measures are about increasing the efficiency of the system, not a call to save more, increase savings incentives or to educate the public about “adequacy” and such concepts.

Better saving

It’s hard to see past the three measures that Hunt and Stride lay out to improve DC saving.  Like it or not, we need to have a better view (dashboard) on what we’ve got, not least because we all worry we may have lost touch with some of our savings.

We know that what we are saving for “a pension” may not be that , but no more than some kind of reservoir of capital that will not replace our working wage. Something has to be done to make a “pot for retirement” –  a “wage for life”.

We know too that our money , once we pay it over , is managed on our behalf by people we trust to do their best for us and that the results of that saving have been too various and too uncertain. Addressing confidence about what happens to our money is no mean task for Government , fiduciaries and savers.

The Government is right to focus on giving us control, a purpose and the means of delivery.  The letter makes no mention of increasing contributions under the 2017 AE reform package.

The message is clearly that we need to make more of what we have, not increase what the public consider “pension taxation”.

Right now, that is the right message. There is too little “right” about our pension saving system and until the pensions industry addresses the inadequacies of what we have, we need to survive on the thin gruel that DC savings rate provide us with.

This is the sub-text of Jeremy Hunt and Mel Stride’s letter to Nausicaa Delfas.