I found myself in a room yesterday in a windowless room in the DWP’s Caxton House arguing for value for my money with three senior civil servants. I know all three well, have grown up with them over the last ten years and we all know where we are coming from, we are coming from a world where savers had to swap their pots for an annuity which this blog called anything but “value for money). I started out in 2009 shouting my head off against the craziness of having to invest a life saving in an instrument backed by corporate bonds and managed for the benefit of insurance companies and their shareholders. I, like everyone who understood pensions, did not want to swap my pension pot for something that was clearly less invested than a pension.
Then – incredibly in the 2014 budget, the Chancellor gave us what I thought was the right to a pension. How that has changed, not it is the freedom to avoid a pension and that is why I thought I was sitting in that windowless room , conversing with civil servants about how we could give savers the pension I thought would emerge from the budget.
Indeed I think that we will because this Pension Schemes Bill is not just about offering people a regular income that lasts as long as we do but an open market where default decumulation funds can be constructed to deliver value for money. That is what Paul Todd of Nest has so bravely promised us by Nest (July 29th Pension PlayPen). He is promising a pension from our pot, not an annuity and that means more value for my money (I am an investor in Nest not just a saver).
Sadly, the civil servants reported a lot of enthusiasm for annuities from the workplace pension providers they’d spoken to. As a means to provide the regular income and longevity an annuity is just fine, but is to return to annuities , even bulk purchased annuities, what the last ten years were about?
If we do not wish to get more out of our saved pots than an annuity rate (by way of a default) then I blame the Treasury, the PRA , the BOE and congratulate the ABI for winning the lobby. There was one person in that room arguing for pensions – there is a magnificent collection of high-powered executives at the ABI, I don’t think I am going to win any war!
I don’t want to go to war. I want to bring people to a conclusion that I came to several years ago that a pension scheme striving to provide more, backed by the PPF if things go wrong and delivering long term capital to Britain is called a pension. I am not stupid, I know that there is a version of this called CDC which will become available some time in the future- hopefully this decade. But I see CDC as a whole of life product for a new generation of savers. There are millions of people like me who are over 55 NOW and wanting our money back.
If we join the LFPS or NHS we can swap our pots for pensions paid from their pension schemes, but if we aren’t lucky enough to have that chance, there is no employer to back a defined benefit pension. I do not believe that CDC as a decumulation product for those like me wanting 100% investment, 100% certainty. I applaud Paul Todd at Nest and the team at USS who are offering market driven increases to pensions (conditional indexation) but the CDC bit is off the back of a certain pension.
At USS there is an employer (many thousand employers!) but at Nest there is no employer to bring certainty to the pension. That is why I want to talk with Nest about how they intend to offer pensions. I am having the same conversation with any DC “pension” scheme intending to offer pensions in the future.
Because there are banks in Britain prepared to act as sponsors for DB pensions run by DC occupational pensions. There are really smart trustees running these DC schemes who understand. To give three smart trustee chairs – Helen Dean at Standard Life, Robert Waugh at Legal & General and (just announced) Raj Mody at Smart.
My job now is to talk again to these people and to their executives and explain what this blog has been saying, that we have not waited 10 years for something new, only to find that the new pension is no more than the old annuity, wrapped up as a “decumulation fund”.
I will do so, and I will, as asked take a group to see the Pension Minister and we will also go to see the Treasury and if necessary the PRA and the BOE, to explain why we want value for money and the certainty of a pension. We do not want to return to annuities – mandated or by “default”, we want value for money from a pension and we want it with immediate effect!
