Back in May, the PLSA set up a new group – the pensions equity group (PEG) , with the help of 24 organisations who either had skin in the DC game or wanted to.

The aims of the group were fivefold

1. Developing a way of consistently measuring pension inequalities, beginning with the Gender Pensions Gap before expanding to other pension inequalities.

2. Working with government and policymakers to achieve positive change.

3. Sharing best practice approaches to help employers address inequalities.

4. Finding practical tools to empower individuals, such as planning tools and guidance.

5. Highlighting potential industry product developments that will help drive greater equity for individual savers.

No one could doubt the sincerity of the group, nor the importance of making pensions fairer but such broad policy intent makes me minded of all the calls for a new pensions commission, the fundamental issues that were being addressed in the early years of the century, need concerted action, not more talk.

What people want from the pension system is a pension, not lots of little pots. They find what they want in the state pension. This year (2023) the number of people choosing to pay extra national insurance contributions to fill gaps in their state pension history rose by 75%.

What people get from workplace pensions is lots of little pots  and no pensions.

The Government has come in behind automatic  pot consolidation through a backward looking consolidator , where small pots get bucketed into five big pension plans while going forward – people have a say in their workplace pension by choosing a pot for life.

Steve Webb sees this , not as creating fairer pensions for all but fairer pensions for some

Seems to me that if this idea goes ahead, those with larger pots will be eagerly sought by pension providers who will fight to ‘cherry pick’ their business. But this risks leaving behind people on more modest incomes, including part-timers, who are simply not commercially attractive.

The ‘residual’ workplace scheme risks becoming poorer value if the engaged top earners go elsewhere. And guess which groups are most heavily represented amongst low earners and part-timers? The very groups who automatic enrolment was designed for and who remain ‘under-pensioned’, just as the Pensions Equity Group is highlighting.

It was ever thus Steve. One or two commercial providers started out in 2012 wanting to offer the same terms for everyone, Legal & General  were one of them, offering a flat 0.5% fee to all employers. But this was quickly exchanged for a ban on small employers with less than 50 staff as the company pulled up the drawbridge.

It was left to Nest and Now and Peoples (later joined by Smart and Cushon) to become mass market providers open to all employers. Most of the remaining master trusts are already exclusive and will only accept workforces on an underwritten basis.

Has this led to poorly funded employer covenants getting a worse deal?

Well not exactly.

This is one of many charts produced each year that show that member outcomes vary between providers depending on whether you are looking for absolute returns, volatility , and  one years, five years or thirty years. the winners at the end of 2023 are likely to be different from those at the end of 2022 but what you cannot see is any consistent picture.

You certainly can’t see a group of well-funded , underwritten pensions consistently providing exclusive access to better returns. Most providers, including Nest , can show you charts where they are providing high returns at low risk , a few can’t and they are the ones we hope we will be culled by tPR as serial under-performers . But as with football teams, the richest could get relegated.

In reality, what pension you find yourself in is “pot luck”, your outcome is dependent on factors which are for most people are beyond their control. Sadly, even for organisations with huge resources of human and financial capital, there is little certainty of success. We tilt at windmills when we aim our lances too high.

Tilting at windmills – why “pension equity” is too hard

You may get lucky in your career and be in a workplace pension that pays you well at retirement relative to your salary and contributions. Teachers, civil servants, NHS workers, police , local government officers and MPs all fall into this category.

You may work for an employer who puts pensions at the heart of their reward package and offers a decent contribution into a DC pot and a salary that turns a good contribution into a decent pension.

But for most people, the amount they get out of workplace pension is a function of how long they work for and how much they earn with the employer’s contribution being pegged to the minimum it can get away with.

The ONS consistently measures the likely outcomes of workplace pensions based on input and output and these numbers break down who are winners and losers by gender , age and employment sector. We know that women get less into their pot because there is a gender pay gap, there are less career opportunities for people with ethnic origination and we also know that people from deprived areas get less time to spend their pots than those in well-off areas, because they die sooner.

You cannot do much about these inequalities through “positive change” within the pension industry. With the best will towards these organisations, they are not in the business of changing society

Abrdn, Aegon, Aon, Arc Pensions Law, Aviva, Barnett Waddingham, Dalriada Trustees, Hymans Robertson, Legal & General, LCP, Mattioli Woods plc, MFS Investment Management, NOW: Pensions, Pinsent Masons, Pensions Policy Institute, PLSA, Quietroom, Royal London Group, Smart Pension, Sackers, Scottish Widows, WTW and USS.

They are however the club that calls itself the pension equity group. They all have individual agenda , their own solutions to the problems they see arising in pensions and no doubt they will continue to tilt at windmills in a well meaning way.

But these organisations don’t include the two largest (by membership) pensions in the land – Nest and Peoples, nor do they include unions or consumer groups. If they did , the pension equality group might come to different conclusions but these would only be another set of proposals to add to the Government’s consultation responses.

Actually, what is needed is implemented change from policy so people can reach retirement with one pot that can be exchanged for one pension that pays a decent replacement wage when taken alongside what people get from the state.

To get there, we need Government’s help, Nest was created as a state intervention to ensure that small unattractive employers with unattractive workforces, did not get left behind, It still has a public service obligation. Under pensioned people do not aspire to pay more into their workplace pensions , they pay for added years of state pension. They tune in to Martin Lewis who tells them how to get pension credit and how to pick up free money from employers by participating in workplace pensions.

We don’t change society by empowering individuals through modelling tools or highlighting product developments. These things are important, they go to making a more competitive market  that in the long-term improves member outcomes by providing better value for money. But let’s not dress this up as a social mission. We can’t solve society’s problems with inequality , let’s stop tilting at windmills

IL FAUT CULTIVER NOTRE JARDIN