People are getting a little confused with all these pension announcements going on. This blog tries to make sense of them with the help of a podcast from Steve Webb and David Fairs which I am providing some commentary on (not least because it’s pretty weird).
What’s going on?
There are two parallel activities that have been announced. The first is the publication, reading and enactment of a Pension Schemes Bill, details of which have been announced (though not the text of the Bill itself). The second is a review of workplace pensions led by Pensions Minister Emma Reynolds with the sponsorship of the Chancellor Rachel Reeves and the Minister responsible for the Local Government Pension Scheme.
There has been some speculation as to how the two initiatives will interact with each other. The pensions industry is involved in the review , parliament the Bill. Steve Webb suggests that the Review will provide the detail for the Act which could make it the most febrile lobbying forum of the 21st century. Here he is , talking with former regulator and fellow LCP Partner David Fairs
For those who haven’t time to listen to it (and I urge you to do so) , then let’s look at some highlights.
The new DB funding code will not be implemented from 22nd September because it needs parliamentary time which isn’t there. Like Webb, Emma Reynolds inherits a burning platform which has smouldered since 2018. The DB funding code may not be top of Reynold’s agenda, but it still has the capacity to shape the investment strategies of many DB pension schemes – something that is very much at the top of the agenda.
I am pleased to hear David Fairs talking of urgency, though disappointing to hear him still talking of a two year cycle in getting things done. This really need not be the case.
It doesn’t take Steve long (11.30 minutes) before he’s off on his pet project, the promotion of the PPF as a public service consolidator. Webb asks if legislation for superfunds comes too late, Fairs is more positive that private equity players are still interested in entering the market so long as the rules of the game are clear (especially around surplus extraction).
Webb talks about single company sponsored “high quality occupational pensions”. High quality is defined in terms of subsidised charges but it is hard to see that (other than superior employer contributions) these schemes serve sufficient purpose to justify the on-costs (advisers, trustees, discrete administration, investment fees etc). Fairs opines that this is not as important to the Government as DB consolidation but that depends on what master trusts can do , that such schemes can’t.
The small pots initiative gets some airtime, but Steve’s magnetic pensions idea (pot follows member for the dashboard era) is bigged-up for providing better engagement and preserves the “beauty of one pension for one member without them having to do anything”.
Discussion turns to the 2017 AE reforms (which are not mentioned in the Pension Schemes Bill). Webb wants a timetable like the auto-enrolment timetable. Webb also wants detail on tax-relief reform (he has long argued for flat tax-relief). Fairs reckons that this is too big a challenge for a Government with priorities elsewhere. This is speculative stuff with Fairs reckoning the options to increase stealth taxes irresistible to any government.
The question is whether tomorrow’s problems can be solved by increasing tax on tomorrow’s savings – or from growth in the economy. There is some discussion on what kind of growth is on the table and “green growth” is mentioned, but the green agenda is pretty marginal in this podcast.
The discussion ends with a discussion on the future of CDC – another matter that isn’t mentioned in the announcement of the Pension Schemes Bill. Webb reckons CDC presses all the right buttons and Fairs agrees.
So in the 32 minutes, the podcast discusses a Pension Schemes Bill that LCP wants rather than the Pension Schemes Bill that parliament is about to get. The fact is that most of what LCP has been lobbying the previous Government for, didn’t happen and isn’t happening in the Bill.
It’s weird for Steve Webb and David Fairs that their agenda is not being followed – but not totally surprising. This is of course a Government that has its own views. What is even weirder is that in an apparently objective discussion on the Labour proposals, measuring VFM and DC decumulation hardly get a mention.
What do the consultants not want to discuss?
The most “curious” thing about this “beyond curious” podcast, is the couple’s swerving of perhaps the most consumer-centric of the ideas in the Pension Schemes Bill, the adoption of means by which Britain’s DC savers turn pots back into pensions.
This looks like being a consultative black-hole , best avoided. It is definitely in the too hard box when it comes to innovative solutions and may be palmed off as a “use for CDC”. Webb has had his go on this with his flex and fix proposal (buying an annuity triggered by an algorithm that converts a drawdown pot into a wage for life). But this is not getting a lot of traction.
I suspect that lurking in the shadows is an oven-baked solution to the problem, if only the former Pension Minister and TPR Director of Policy were to dare to speak its name.
