Nausicaa Delfas CEO of TPR
This is the Pension Regulator’s speech.
It has a summary of what the CEO intended to be understood. This summary has come from artificial intelligence. I doubt that any human was involved for it is nothing but cliches and does no justice to Nausicaa Delfas’s speech!
I wish I had been here to hear her. Her nuance is missing in my reading though the flow of thought is there and it is important
Before moving to the speech, (given to a chosen audience invited by Eversheds Sutherland), I’d like question some of the three bullets above.
Bullet point one; the workplace pensions market may be seen as giving its users good value pensions. The market though is not the outcomes but what produces them. The “market” is a place where products can be bought.
Bullet point two; what are “governance benches” and what is “deep” about them? I cannot find any other use of this phrase. I don’t know what TPR is getting at, which is sad as the rest of the point is excellent. The phrase appears in the speech
I am not sure what is being used to produce these summaries but it does not speak “human”. If we are to adopt AI, we must be careful to remember there are those who look for leadership. These include readers; we pay attention to what a TPR CEO says.
Now let’s turn to the speech which I liked , (as I liked the last one).
I’m not sure that I knew the Pensions Commission 2 is conducting its review on adequacy, fairness and sustainability of the pensions system. I don’t think we need any more reviews, we need action as we got from Pensions Commission 1. Reviews get destined for filing. There are some inept phrases such as “the system is currently going through the biggest changes in pensions” but for the most part, the writing of the speech is good.
It is brutal but the fate of a DB scheme by 2036 will be “whether it concludes in a way that is orderly, efficient, and fair to members”.
DC megafunds
The prediction for 2036 is “Defined contribution (DC) will sit at the heart of the 2036 system”. It is hard for AI to create a sentence like this, predicting “£1 trillion in DC trust assets as the dominant repository of long-term household wealth”. House held wealth suggests a very different approach to who owns pension, it is a good phrase that makes some sense of DC as both wealth. A “repository”, suggests that the pot is a store of wealth, this is what DC saving has relied on for its attraction. This leads us to the wealth of a nation being stored in a bigger repository – “the megafunds” that DC defaults will become
There’s a lot of talk of megafunds and how they differ what we’ve been used to for the past 14 years since workplace pensions took hold – funded by AE. “Government benches” makes a reappearance but I’ve had my gripe on it – maybe it’s used somewhere in Brighton!
The DC savings (aka pensions) dashboard
I think the Pension Regulator hasn’t yet got a grip on what a change in confidence will come with the Pensions Dashboard. There will be an expectation that every penny saved will be quoted in the pension shown. Lost pensions will be rare and I doubt in 10 years time that transferring pension pots will be an operational problem, it will be about VFM but that will be known as PFM – Pensions for Money. We really will be getting to grips with what a good pension is and people will understand the value for indexation or fixed growth rather than level pensions.
What will be interesting is whether these DC megafunds will get publicity for successes and failures. Whether people will start to do what Martin Lewis showed us last night, we do not do. We have no interest in how our DC funds are invested and whether we are being delivered value either on the way up or on the way down.
There are people who say that the individual pots that DC pensions run are more transparent but if nobody pays them any mind, what is the point of individual pots?
The CDC “repository of wealth but paid as pension!
Which brings us to the single pot paying a pension for everyone. Nausicaa Delfas predicts
Collective defined contribution (CDC) will not replace individual DC, but it will have earned a stable role alongside it.
Despite statements made by DWP and numerous experts including PPI , WTW, Aon, Hymans and LCP that CDC will give up to 60% higher pensions, TPR have been backing away from such claims and focussing on CDC taking away the hard questions posed of those at retirement tacking the hardest problem in finance.
Perhaps the most fundamental change will be how the system approaches retirement itself. The traditional handoff at the point of retirement will feel increasingly outdated.
Accumulation and decumulation will be treated as a single journey, with most members remaining within scheme-led retirement pathways that balance flexibility with greater predictability of income.
It seems to many , including my team , that CDC’s pension advantage is too abstract for most employers. A simple way of providing a pension is much easier to get your head around. All the same, most employers are in the hands of advisers and for advisers , concepts such as advice and guidance both to employers and to staff are deeply engrained into their business models. We have taken twenty years to move from pensions to wealth management and CDC is asking for a return to a kind of pension system we have not seen since the last century.
This will take a long time, just as the growth in CDC to rival DC will take a decade.We have waited a decade for both a dashboard and a way to save for a pension rather than wealth. It will take us a decade to fully appreciate the advantage of saving into a pension (by- passing pots) and it could take a similar time to appreciate the stability and effeciency of CDC.
A human’s summary!
So in my summary, I thought this speech accurately estimated 2036. There will be a shift back towards pensions, DC will maintain a prominence until Nest, Peoples and the other megafunds move to being CDC, not wealth tools.
There will be rivals to the DC megafunds but it will take more than ten years for people to fully appreciate the pension advantage of collectivisation. Nausicaa Delfas has accurately grasped the direction of travel. We are a nation which wants to save for pensions . Right now we have wealth but this will change over time.
I do hope that we will improve the detailed writing of speeches , what is a “Governance Bench?”