Here are some of her initial conclusions (relayed by Corporate Adviser)
“About 75% of DC pension holders aged over 45 don’t know they have to make a choice on how to take their money at retirement, and face the risk of running out of money in later life.
“Only one in four people have a plan for how they will access their funds. A recent Hymans Robertson survey found that 75 per cent of the over 55s would like their income to start automatically at retirement.
“Our strategic objective – more people on track for a secure retirement – means well-structured default pensions that provide better value for members.”
If the strategic objective’s to provide default pensions in the future , what’s all this fuss about historic investment performance?
“So the value for money framework will be one of the most important levers to affect outcomes. And at TPR, working with FCA, we’ll be setting the homework, asking trustees and IGCs to rate themselves but we will be checking their answers and we’ll be consulting on a code of practice as to how we expect the assessments to be conducted.”
What’s better value for members? The impact of poor investment, of prioritising low charges to win the master trust new business or the investment performance that drives better pensions? When the 0.75% charge cap was introduced it was to stop gouging into member’s pots when there was very little there to gouge. It became the benchmark for VFM and as everyone joined the race to the bottom, VFM seemed offered to every saver.
Now with some master trusts managing more than £50bn, the issue has turned from what’s being taken out but what’s being done to maximise the pots that are left after charges have been taken. But the regulation of how income is drawn from pots has hardly begun. This despite millions of people drawing their tax free cash (the only obvious way to get money out of pots while a replacement to the annuity as “default” is being found).
I point the finger at TPR here and wonder why they are so obsessed with getting Trustees to report on their successes and failures in terms of investment performance. There is nothing that can be done but communicate to members a traffic light estimate of how things have gone. What good is that to members?
Where is the benchmark against which we , the consumer, can assess VFM of our investment performance? What is the performance that my pot has received, rather than what is a proxy for it- an actuarial calculation?
This is what Emma Douglas has inherited as Chair , though my sympathy for her is tempered by her being at the centre of the lobbying for performance nonsense instead of the development of means to pay people the pensions they were promised.
There are ways forward; flex and fix, Retirement CDC and Pension Dashboards explaining DC pots in terms of the level annuity that can be bought. But we are still looking at types of “money purchase” where thinking about pensions is imposed on the saver. Here choice is expected of the saver.
The amount of people who want no choice in their pension is consistent with the amount of people who did not exercise an open market option to get the best annuity when annuities were hard defaults.
For these people, no amount of choice, demands for engagement or reports on value for money will make the slightest difference, they want what is chosen for them and will like Emma Douglas has done – follow default after default.
Douglas said retirement defaults would be equally important, given that most members do not actively make pension decisions. She highlighted the large number of ‘triple defaulters’, who remain in their scheme’s default investment option, pay the default contribution rate and retain the default retirement age. She said she herself had been a triple defaulter, having had a bad experience switching out of a default on one occasion.
Yesterday, I reported on the thinking of Glyn Bradley who comes to the conclusion that people see VFM in terms of the pension service, the wage in retirement set against the amount they’ve set aside rather than taking their pay without deduction.
Glyn sees the benchmark being what is paid by an inflation linked annuity (A CPI linked annuity which are hard to find).
He’s right of course, the default for pensions is how much they can pay by comparison with the annuity benchmark and this has been trialled by DWP who wanted to compare the likely pension from a lifetime building up a CDC pension. This is what the DWP concluded gave a 60% advantage over the inflation linked annuity that Glyn would have us use.
This is inevitably where TPR will move to – even though they dismiss it now. Waking up to the thinking of Glyn Bradley, Brian Henderson is what TPR need to do and fast. Emma Douglas needs to extend TPR’s VFM thinking to the pensions offered by default. She’s getting there.