Tisa calls for standardisation on pension projections

What with what?

Tisa is an organisation whose job is to make people see their finances consistently. The Pensions Regulator is keen to get DC benefits presented to ordinary people who do not get access to advisory financial software with a clear idea of what they could get as income from their DC pot.

So what is TISA wanting TPR to come in line with? DP24/3 by the FCA? I had to look  up what TISA wants pensions to conform to.

There is more

I’m not too sure just what is behind this, but I worry that telling people they will get a stream of income from their DC pot is not something that advisers agree with. If the move is to make pensions to conform with other forms of saving – including projections of “Stable Coins”, then I don’t see pension dashboards telling people how far they are towards the kind of financial goals most of us need to replace income from work with income from pensions. The article that I draw from simply hints at what TISA actually want.

Let’s be clear, pensions may be being used by financial advisers and sophisticated investors as a means to pass money to the next generation. they may be targeting debts and be regarded as integrated with other forms of saving to which they could be harmonised. But this is not how pensions work in people’s lives.

For most people, the State Pension is the key pension and private pensions support it. If anything, occupational pensions conform to state pensions projecting income that people will rely on when they are not receiving income from work. The money sitting in DC pots which might be compared to FCA products is pension saving that has been liberated from “compliance, guidelines and rules” laid down by the FCA on ISAs and other capital targeting savings schemes.

Pensions are different and not the same

Tisa calls for standardisation on pension projections

Pension Oldie with his usual good sense comments

Remember the Pensions Dashboard is primarily designed to be used as a marketing tool for the pension providers. The stated aim to encourage the small pot holders to consolidate into their fund and to make further pension provision will undoubtedly be extended to encouraging  those with larger pots to transfer.

The problem is the Dashboard will be encouraging individuals to compare their “guaranteed” pension income from a DB pension, and the projected State Pension against the entirely random outcome which a DC pension pot would provide.

I understand the Dashboard will present the DB pensions in today’s pounds projected forward using the revaluation assumption adopted for the technical provision valuation. So even the inflation projection will vary from scheme to scheme according to the cap applied under the Deed at time of service but also the date the valuation assumption was set.

I remember the problems, say for those with low cost endowment mortgages, arising from the normalised projection assumptions of the 1970s and 1980s for fund growth (I recall 8% p.a. was the standard for a number of years) .

Perhaps we could present two figures, just to demonstrate the potential range of outcomes:

The inflation projected annual income from retirement date projected using the lowest discount rate/ highest inflation rate applicable during the previous 20 years.

The income projected using the weighted mean discount and inflation rates over the past 20 years.

Pensions operate in a different paradigm, servicing a different need. So I resist any move to standardise how pensions are shown on pension dashboards. I would go further and I call for pensions to be considered holistically as income and not as cash. That is why I do not want to see the Treasury dominate DWP, the PRA and FCA dominate TPR and why I do not see the pensions dashboard as having to conform to the FCA’s 23/4 regulation of capital projections (of Stable Coins).

The conformity to funding processes worked out by accountants was why DB pensions went from a source of growth for the country to what we see now “DB pensions in lockdown”. If conformity to FCA rules in projecting pension pots rather than describing likely income succeeds, then we will see DC savings as simply a regulatory problem for wealth managers, it will do for DC pensions as accountancy practices have spoilt DB pensions.

For us to use the phrase “DC pensions” we need to have a way of talking about pots as the precursors of income. We need a better way of converting savings pots into lifetime income (pensions) and we need the FCA and TPR to work to a single template, a pensions template.

I am pleased to see Nike Tross of the FCA is attending PLSA’s investment conference in a couple of weeks, I will be making these points to her. I believe she already understands.