Philip

Tom

A  large number of those who retire in the UK do so reliant on public unfunded pensions. Many will have the majority of their state pension from the state pension or from DB pensions from the private sector including the large  funded schemes – Railpen, USS and LGPS being examples – where people still build up their pensions.

A good number of people are however dependent on savings within pension wrappers and in bank accounts , ISAs and property.

For these people there is a service from financial advisers, DC pension support teams and most recently support services, Guiide is one.

Here is what Tom has to say.

A well-funded retirement rarely happens by accident. It requires intention, planning and sacrifice. For most of us, it is complicated and uncertain; it involves managing risks we can’t control, such as future investment returns and inflation.

So it is important to control the things you can, and to make your retirement planning as simple and predictable as possible.

This is a challenge, because our regulators and policymakers seem determined to make it as difficult as possible. The Financial Conduct Authority (FCA), the City regulator, is looking at two aspects of the management of our retirement savings: the process for consolidating multiple pension pots, and the use of predictive modelling tools to plan your retirement.

Both of these are relevant and important to millions of us. Most of us end up with more than one pension as we go through our working lives. Thanks to the flaw at the heart of our auto-enrolment system of automated pension saving, every time you change jobs you are put into whatever pension scheme your new employer has chosen for you. So now hundreds of thousands of people transfer pensions every year. Multiple pensions means duplicate paperwork, log-ins, investment choices and administration: it makes sense to consolidate them into one.

Unfortunately, this is not as simple as it sounds. With administration systems stuck in the 20th century, some pension firms still insist on paper signatures, sent in the post, rather than instant electronic communications. And thanks to laborious and time-consuming fraud prevention protocols, even once a firm has received your instructions, it may refuse to execute them until you have jumped through more hoops.

As with so much of the regulation that blights our everyday lives and stops us from making money and growing the economy, the fraud prevention work is well-intentioned but poorly executed. A simpler approach would be for the regulator to maintain a register of known “safe” pension firms, where transfers could be sent without bureaucratic delays. That, however, would require the regulator to take some responsibility. So instead we have to do it the hard way and, unbelievably, the FCA plans to make the system even slower and more bureaucratic.

If you have the temerity to want to move your pension, you’ll have to wait while the companies involved double-check that you have done a proper comparison of their features and charges. Of itself this is not a bad idea, but rather than making it easy for us to compare pension companies any time we want, the FCA has decided to force on us a comparison process only after we have already decided that we want to move our money.

The FCA has also woken up to the fact pension savers want to use technology to plan and manage their savings. Using a modelling tool to project your earnings, pension contributions and non-pension savings is one of the easiest wins in financial planning — everyone should do it.

To be fair to the regulator, it is trying to be accommodating in drafting new regulations on how these tools are designed. Firms will have more flexibility over the assumptions they use and this is good. But, but, but … this hasn’t stopped the regulator from dropping a new set of rules (for how projections can be presented to customers) on top of three existing, overlapping sets of rules. Nor is it stopping the regulator from insisting on bizarre inconsistencies, such as requiring customers to type information in themselves (increasing the risk of error), rather than allowing the information to be automatically uploaded to the calculator from existing records.

These may seem small inconveniences and no doubt we will all work around them. And although it is fashionable these days for populist opinion to declare that Britain is broken, it isn’t. But it could certainly work a lot more effectively if we could only restore a mindset of risk-taking and deregulation.

The mess that the FCA is getting into is because it is working with the Pensions Regulator and MoneyHelper on pensions that deliver simple income streams through the pension dashboard.

And the tools like Guiide are so secondary that Government isn’t listening. AgeWage has produced VFM calculation tools, AA headroom tools and support software for payment of AVCs through salary sacrifice and all three have met with minimal interest by Government or indeed that large pension schemes we have tried to help.

Here I fear is the problem. It is that if you are outside the main delivery mechanism for retirement income (see the opening paragraph) you are peripheral and will be given second class treatment, as will your software providers. Despite having an AI innovation unit, the FCA are still requiring manual input for pensions – it does not surprise me. The Pension Dashboard is as cutting edge as Pensions go and  it is sucking the entire technology budget for pensions.

The alternative to empowering individuals to manage their affairs using tools like Guiide is to simplify pensions so that the best things you can do become obvious. That is what is behind the Pension Schemes Bill and its extensions.