For Methodists and Presbyterians among you, Calum and Mark discuss pensions strategy with the church the Wesley brothers preached their post-ignition sermon in clear sight behind them. The church is now presbyterian but it has a Wesleyan root!
Calum is Scottish, Mark is English , they are both passionate to make retirement adequate for those who get pensions from the trusts and employers they advise.
Here is an excellent alternative to the LCP podcast I wrote about earlier this morning.
Mark is producing a report on adequacy. I think the essential question is whether employers focus on adequacy or flexibility or try to find ways to do both. I suspect some rich employers with well paid staff may focus on the flexibility of “fix and flex” drawdown from DC and those who have to prioritise adequacy for their staff, will move to CDC.
The boys want employers to take a step back and strategize, as Calum tells us
“I have had 20 years consulting and I have never seen so many balls in the air”
Having spent a few days in Edinburgh where these questions were not being framed with quite the cogency that Mark and Calum frame them, I advise you spend ten minutes with them and then consider where your employer is on this!
Challenge and opportunity
I do not see the debate being just between the Finance Director , the Human Resources Director and the employee benefit consultants. I see the workers voice arising through unions who see an opportunity to press for adequacy rather than flexibility and I see the richer employees wanting SIPPs rather than CDC!
Most large employers have heard demands to keep DB schemes open, then pay more into DC, now the demand from workers and unions may be wider, especially with a pension dashboard spelling it out to ordinary pension savers.
There is a challenge here but there is also an opportunity.
The State Pension Gap
Mark Stansfield’s work suggests that there is typically a £12,000 pa gap between what pensioners need and what they get. This echoes recent work by Royal London which is referred to as the state pension gap.
Calum sees this as a £250,00 shortfall in the pot. The Pensions Commission is due to report on this gap and gaps based on gender and ethnicity too. Bottom line is that “adequacy” is an issue for everybody. For Pensions UK and the ABI, the answer is to increase contributions from payroll into workplace pensions from 8% of band earnings to 12%. Unfortunately that is not happening either at the employer or Government policy level.
Mark points out that at some point after October 2026, individuals will see their pots presented as pension on their phones and other devices. Even if the presentation is of annuities purchasable as level income, they are unlikely to make for comforting reading for ordinary people. Employers will need to move nimbly and move early, if they are not to suffer a backlash from staff feeling cheated.
Compliance or Competitive Advantage?
For most employers, compliance with the pension rules that will follow the enactment of the Pensions Bill will be all that bothers them. For a substantial minority, competitive advantage will be the drive (or perhaps fear of dissatisfied staff and their unions).
Calum and Mark ask if there is an early mover advantage for employers who want to upgrade their pension offering. For such employers, the pension offered to staff is second only to salary and I can see progressive employers moving towards whole of life CDC rather than offering less pension in favour of flexibility. But there is a type of employer who will go towards defending freedom and flexibility and some towards the kind of pension that staff expect from the state and from time in DB schemes.
What should employers do?
Calum and I have a little discussion about what might follow in the months to come. I include it here but if you click through to the comments you can see not just this conversation but useful comments from Richard Smith and others.
