Having roved around the basement of the National Liberal Club with David Robbins and the Pension PlayPen crew (more on this later) , I cycled through a wet Whitehall to the offices of the Social Market Foundation meeting along the way James Kirkup, formerly of that think-tank and Chair of a lengthy debate , sponsored by Cushon and featuring the work of McPhail and Johnson on “Pensions and Member Choice”. We arrived wet, we left with the warm glow of a proper discussion. It was worthwhile.
Chatting with the DWP beforehand I noted that if someone had presented saving into a pension to the student me as “pot for life”, I’d have found the idea of retirement an extension of my student days and reached for the application form.
Infact, much of the discussion surrounded the behavior of the children/grandchildren of those around the round table. They seemed to divide into two, those who paid their pension no attention and those who devoured information on investment and were fully engaged with pot management. The key observation was that “member choice” should be optional but that for those who don’t make choices, a “lifetime provider” should be able to hoover up employer and self-employed contributions from the start to the end of someone’s working life.
This might not seem very difficult but it faces two important challenges
- The dangers of “first scheme capture” – e.g. being dumped into a dud scheme with the first job.
- Duff decision making from the “engaged”.
My views on this can be reported as I am able to release myself from the accursed Chatham House rule. They are
- That nobody should be enrolled or opt-into a scheme that isn’t considered good. We have the master trust assurance framework, we have trustees, IGCs , GAAs we have the consumer and fiduciary duty, we have the FCA , TPR and that is safeguarding enough for the moment. Down the line, if a scheme consistently screws up, that scheme should be shut down as envisaged by Jeremy Hunt in the budge and by numerous VFM consultations.
- That those who choose to “go their own way” and choose to transfer away from the workplace pension system , are free to do so, because we value the rights of self-determination and because there is plenty of safeguarding in place. There will never be enough safe-guarding to prevent accidental or deliberate theft. Those who choose to switch horses need to be made aware that switching isn’t free , the single swinging price at which units are bought and sold is not guaranteeing fair value and you are unlikely to get the economies of scale from a SIPP that you had in a collective workplace scheme.
Which is why I am pro the concept of a pot for life and why I hope I put a smile on the DWP’s face when I spouted a version as my contribution to the event.
The Michael Johnson/Tom McPhail paper was similarly bullish on pot for life. It was not said , but there was a sense from participants, that the general opposition from the pensions industry to a pot for life model (rather than pot follows member -with attendant transactional costs) was evidence that pot for life was better for members.
Of course it is. Pot for life is a pain in the arse to get going and a distraction to workplace pension providers who would rather be doing other things , like lobbying the Government for more contributions. It was interesting to see the Shadow Pensions Minister getting actively involved in the debate, I cannot report what she said but I can say it resonated with me and I think my words resonated with her.
What is good for members is genuinely not good for pension providers and Governments have to balance the sustainability of a policy against the value it brings. In my view the initial disruption that the lifetime provider will bring, will be justified by better outcomes from all the money we squirrel away and I do think we can implement it without detriment to the auto-enrolment system.
We’ll get more insights into the views of the very likely next Government on pensions at the Trades Union pension event which comes up today and from which I will be reporting in a couple of hours time.
For now, I would opine that the Lifetime Provider/Pot for Life/Master Pot idea is unlikely to be buried at the next election and while I don’t expect to see it implemented much before the end of the decade, it is indeed the most interesting long-term development for pension saving we have seen since the advent of auto-enrolment.
Talking of which, it was good to hear from the Baroness Drake, who was at the meeting. Again I cannot say what she said , but I can say I thoroughly agreed. We should not under-estimate her importance in getting the auto-enrolment show on the road (Pension Commission and all that).