The Pensions Minister – Paul Maynard.

Our current pensions minister charms us with an engaging “cuddliness”. But his style remind me of Frank Field’s. Just as you would not have wanted to have had an unpleasant conversation with Frank, so you would not want to get on the wrong side of Maynard. Maynard said as much to the PLSA, warning pension schemes who did not put their members/customers , in the know about their pensions , that he might not be quite so cuddly when he came a calling.

This is what seems to be driving him (taken from an interview with Pensions and Investments)

“Wider retirement planning in the U.K. is still impacted by issues of individual participants’ grasp of their own funding positions”

“An important thing to me is that you have the right engagement at the right time, that helps (participants) understand where they precisely are, because I think a lot of people are uninformed. They’re maybe in a better position than they think they’re in, maybe in a worse position than they think. But they need to know what that position is,” Maynard said.

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Putting people in the know

The overriding theme of the second phase of the retirement revolution (initiated by auto-enrolment) is about knowledge, knowledge of what you have and have not, an understanding of what you can and cannot expect in later life. In short, the information to make your plan.

Behind the word “knowledge” is another word “information” and behind that “consolidation”. Knowledge comes from full information and full information comes from consolidation of data and of “funding”.

This needs to be put more clearly to the British population.

The pensions dashboard is the means that people will have to see information about funding consolidated on one digital screen. It’s not more complicated than that. The pensions dashboard is not a consolidator but it can lead to consolidation of funds as a personal decision. This acknowledged that whatever happens in terms of mandated consolidation impacts future generations. For people retiring today and decreasingly over the next 20 years, pot and pension proliferation is an unfortunate fact of life.

Playing the long game in pension consolidation

It’s important to pick apart the various consolidation strategies the Government has in mind. There are three of them.

At the top end of the pension food tree, a few master trusts will push on to become worth at least £50bn, one (Nest) is over £30bn, two – (People’s and Lifepath) are over £20bn, several more are over £10bn. It is not hard to spot the hunters and the hunted. The consolidation of and by master trusts will consume all but a handful of own occupation DC schemes and even they will shed deferred members and pensioners to focus on providing a savings vehicle for core employees.

DB pensions are looking harder to consolidate as pensions, the consolidation is to insurance companies who are exchanging pension promises for annuity promises.

This is the top-table of pension consolidation

A step down, we are expecting the mandatory consolidation of individual pots through two separate initiatives.

The first is retrospective and involves a carousel where small pots are combined through them being combined with a few default consolidators who volunteer and are approved to hoover up small amounts of money to avoid these pots being ruined by high charges and poor management.

The second is the highly controversial “pot for life” proposals which I had suggested under a “master pot”  proposal to then pension minister Guy Opperman some years back. Here people choose a pot for life and this pot gets fed with employer contributions as people move from job to job.  I proposed that those who made no choice were stuck with their original provider when they were first enrolled and that a register of the designated pot was kept in a central store of information (perhaps alongside your Nino on the DWP database for national insurance).

These are the second and third tables  of consolidation

While we are seeing natural attrition at the top, the Government wants to speed things up by interventions around Value for Money which will require under performing pension schemes to be closed and become sitting ducks for consolidation. People will do what they do in Australia when they see their pension in the relegation zone of pension league tables and vote with their feet (or more properly their fingers as they transfer to better looking funds).

The point of these consolidations is partly to make it easier for people to see all their pension rights in one place and secondly for them to be able to do something with the knowledge they have, it’s the knowledge- information- consolidation continuum in practice.

This may play out of ten years, twenty years – maybe longer but the point the Government is making is you have to start somewhere.

I support the approach

A lot of this “putting people in the know” strategy is so high level that we don’t have to worry too much about “policy”, the markets will eventually do things for themselves.

But the problems of small pot proliferation and of access to information , are retail issues that the Government has got itself involved with (too involved with as regards the pension dashboard).

We will get there eventually, but the dashboard will be six or seven years later than expected and I have no expectation of seeing a carousel in the next ten year, pot for life looks like one for the 2030s too.

The idea of having lots of small pots is a lot better than having no pots at all. The idea of seeing state , DB and DC pension rights in one place is a lot better than having no dashboard at all. Of course we want to move faster to consolidation than we are doing, but at least we have an approach and both Conservative and Labour politicians seem to think it is the right approach (listen to the latest Laing Cat pod for confirmation of that).

Maynard appears to have worked out what Government can’t do and what it can and he’s focussing on making sure we are in a position to know what we’ve got and what we can expect from it. That’s a retirement plan and while it may not be as good as the cashflow modelling you’d get from an IFA, having a simple way to understand your capital and income in later life, is about all you can expect when you get to retirement.

The choices you take from there are the next big problem, but the Government is quite rightly not intervening there (yet). The “yet” is important.