It’s been 33 days since I’ve been in a shirt. I was three down day one but now am 3 all with bad health!
— Henry Tapper (@henrytapper.bsky.social) December 18, 2024 at 7:35 AM
Those who follow my blog may be wondering whether I am back in the game. The answer is yes I am and that’s down to my lover/wife/partner who brought me a shirt so I didn’t have to wear a gown. Thanks to Kings for looking after me so well, thanks to my friends for making me feel good about 2025!
I hear that the DC pension funding industry is upset that Emma Reynolds is not pressing for increases in auto-enrolment so that savers have to opt-out of 12% of salary. Instead we will save at 8% of a band of earnings with the opportunity to save more or less. This is a continuation of what we have today.
I am pleased with this immediate decision. It may not be good for those who manage auto-enrolment pensions and benefit from high savings level but we need to focus on the schemes that persist. Right now a decent scheme will have £25bn, there are only a handful of these schemes. We need to have consolidation of DC schemes and DB schemes. I believe that both types of retirement schemes can benefit by operating as pension schemes rather than handing over people’s savings to insurers. I hope that pension schemes will pay pensions to savers and not just offer drawdown pots and annuities. I think that individuals will be able to have pensions paid to them for as long as they live and leave some residual pension to their partners.
Why am I moving into rant mode? The answer is that I have spent the past month with people ask me how NHS pensions work and they are delighted to hear that the pension they get is guaranteed by the NHS based on how long they have owed and the length of time they’ve worked for the NHS. I can give them a rough idea of how much they will get and the amount of pension will replace the earnings they give up.
As my previous blog suggested, people here are very good workers who want to know how their future earnings will be paid and what they will get when they retire,
What is important is that they know how their work pension connects with their state pension. I have had some explaining to do about WASPI and I spend time with people explaining how their later life income can be increased through an adjustment with payroll.
Living with people who protect me and laugh with me has made me better understood by NHS staff and it has made me better understand the needs of ordinary people.
We are a long away from the world of tax and investment, NHS staff just want to find a way to set aside money so that they can enjoy later life. We are a long way from the complex world of Wealth.
The value of the people who look after me is as high as that of consultants, they need to be offered a pension service they can trust. They are offered a proper pension and they trust it.
I was 0-3 down when I arrived hear on November 14th but now am back on an even keel with pensioni policy. I will write with a much keener understanding of ordinary people for whom pensions are a mystery!
An understanding of the value of the Government has dragged me back to 3-3. Hopefully I will continue to learn from the people I spend time with.
It is great to see the old Henry coming back to us! I have missed the opportunity to comment on your challenges to widely held orthodoxies
While I fundamentally agree with what you are saying, I have two gentle challenges:
1. The effect on the ultimate pension income of the maintenance of the minimum auto-enrolment contributions at 8% is mainly restricted to DC pensions.
As LCP’s scenario analyses show:
CDC pensions (where like in DC the members bear the administration and regulatory costs) should with equivalent achieved investment returns result in a pension income with 8% contributions that DC achieves with 12% contributions.
DB Pensions (where the employer/sponsor directly or indirectly becomes responsible for the administration and regulatory costs and also bears the cost of investment under-performance) will outperform both CDC and DC.
In the market conditions applicable in 2010 the Auto-Enrolment Regulations envisaged that 8% auto-enrolment contributions should be sufficient to fund a 1/120th Minimum Rate revalued average salary DB pension with the possibility of additional discretionary increases/revaluations. Recent analyses suggest that this should still hold true and therefore DC pensions with 8% contributions will struggle to provide 1/180th on a equivalent basis. Is that adequate?
Should the Government not be:
a) Creating the environment where the most efficient methods of pension provision are made available to the maximum number of workers? This might include encouraging the conversion of DC pension pots into DB pensions and also the use of DB scheme surpluses to fund future DB pensions?
b) Aggressively attacking the administration and regulatory costs of all types of pensions.
2. On consolidation of pension schemes, from the Members’ point of view the benefits of consolidation mainly flow from the relative reduction in administration and regulatory costs. A small pension pot invested in the same (? lifestyle) fund as the provider’s mastertrust offering will provide the same return before costs.
The Government’s perceived objective to increase “productive” investment through consolidation of investment funds relates not to the individual pots but to the aggregated pool. The danger is that we end up with a small number of large funds providing returns close to their peers not being challenged by more agile smaller funds taking greater risks but possibly providing significantly higher returns.
With DB pensions, of course, the Member does not bear the under-performance risk and there seems to be no advantage and possibly significant opportunity costs to the Member in consolidating DB Pensions. The employer/sponsor, who takes the risk, will surely wish the pension fund to achieve returns that reduce its future employment and administration costs (and contributions).
Henry, delighted that you have recovered enough to
resume your blog I trust you will soon be back to 100%
Reading over the holiday period worth revisiting.
https://www.audible.co.uk/pd/B0C6V43FVK?source_code=ASSORAP0511160006&share_location=library_overflow
Investment performance matters and a provider should be able to perform above inflation after all costs. Exceptional performance of multiples of inflation are unlikely to be achieved In consolidated funds so there needs to be opt out provisions for members Willing to do some work and to take the appropriate level of risk.