Stretching a rubber band?

01 April 2019

This article was featured in the April 2019 issue of the magazine.

Henry Tapper, director of First Actuarial, comments on recent developments

The Pensions Regulator is disbanding its automatic enrolment (AE) support team, which means familiar faces such as Neil Esslemont will be no longer with us in the new financial year. All will go but Andy Nicholls.

Guy Opperman, pensions minister, has decided to let sleeping dogs lie. He will not be pushing up the AE contributions in line with advice given to him by industry experts in 2017. He is taking no steps to include the self-employed or others of the 11,000,000 working adults not in a workplace pension.

Nor is HM Revenue & Customs engaging with the problem of 1,200,000 of us, who were promised an incentive to save, not getting up to £65 per annum paid into their workplace pensions. 

We are being asked to get to know our workplace pensions but the promised means to find our pensions and see what they are worth – the government’s pension dashboard – looks unlikely to be up and running this decade.

Meanwhile, over 500,000 of us find ourselves able to exercise pension freedoms but have only a forty-minute scripted call with Pensions Wise to learn the ropes.

The current round of pension consultations focusses on protecting defined benefit schemes, introducing collective defined contribution schemes and working out how a dashboard might be delivered. 

For everyday workplace savers and the 1,000,000 employers who comply with AE regulations, the government seems to be stress-testing patience like over-stretching a rubber band.

I am genuinely sorry to see the AE team disbanded, worried that government feels that 11,000,000 of us excluded from pensions can be considered a success and I’m angry that the ‘net-pay anomaly’ isn’t being addressed. 

Most of all I am frustrated that the government’s reorganisation of Pensions Wise, the Pensions Advisory Service, and the Money Advice Service into the Single Financial Guidance Body seems like a rearrangement of deckchairs. 

I am sufficiently concerned for the over-50s and the lack of help available to them, that I am raising £2,000,000 though crowd-funding to establish a digital guidance service to help.

Delegates at the Cintra conference in Gateshead early in February would have heard me rail against the lack of help available to ordinary people struggling with what one economist called the ‘hardest nastiest problems in finance’ – namely the conversion of a pot of money into a pension.

You would think that in a country where 94% of us (a Financial Conduct Authority statistic) do not pay for advice, that an attempt to simplify pensions and offer an app that helps people find pensions, value them and work out whether they’ve got value for money would be greeted with enthusiasm. You’d be right, it has been – by ordinary people – but less so from the pensions industry that seems obsessed to avoid at all costs telling people what to do.

It seems that any endeavour which involves ‘advice’ is now viewed with the kind of suspicion that should be reserved for Maltese Hedge Funds operating as a qualifying recognised overseas pension scheme (also known as scams).

 

...four major issues affecting pension savings...

 

Attempts to take the tension out of the pension, to relax the rubber band, should be given the thumbs up but this is not what happens when you try to simplify pensions to a few screens on a phone. Innovators are vexed by pension lawyers looking out for regulations that prevent simple direct language in favour of the vague generalisations of ‘financial guidance’.

By the time I reach my state pension age I will have been a pension person for45 years. In this time, I have seen pension products improve in terms of investment, administration and how they can be managed by ordinary people. But I don’t think that ordinary people understand how pensions work any better than when I started out in the early 1980s. This despite us living in the era of google, facebook and youtube.

It really is time that the government started investing properly in supporting AE. But for all the deckchair management, ordinary people are none the wiser about what they are getting from these workplace pensions.

I shall wrap up with a response by Ray China when asked at a recent conference what NEST members thought they were getting at retirement: “Our members think that because they are in the government pension scheme, they will get a government pension”.

In April, members’ AE deductions from pay will increase from 3% to 5%; many of our lowest earners will not get the 1% government subsidy and will see a real fall in take home pay. This will stretch the rubber band still further. The government should not chance its luck. It needs a clear strategy that supports AE, and it should not rely on public apathy for its policy successes.