I had been really looking forward to the Government‘s proposals on how we can get a new defined-benefit and a new defined-contribution into play.
I read the document twice last week. My verdict is that it is shallow, vapid and something pensions minister Steve Webb would do well to bury.
As I read the paper, I wrote questions in the margin. They are in bold, my more considered but necessarily intemperate reaction follows.
Where is the reinvigorating? This report is lacking in vigour and enthusiasm and quite lacking in empathy with the people who it is supposed to invigorate. It contains a plethora of ideas but little that is new. Coming at a time when we are struggling to make auto-enrolment work, it will create great uncertainty and prove a distraction. This is hardly “pensions viagra”.
Where are the incentives, which are mentioned as a Government role but not covered? There is no incentive in this report for the employer, the insurer or the member to get involved in risk sharing.
Where is the workplace? There are a number of mentions of relevance but there is no evidence that the DWP have done any “segmentation ” of the market to look at changing workplaces. Not all employment happens in Whitehall. What thought here for the new employers – the facilities managers, the umbrella payrolls and the myriad of businesses which count work as home? What talk here of the new ways of engaging and learning? The workplace is an ill-defined concept about which the DWP seem unfamiliar.
What is the DC stuff about? The report talks of DC as it was five or ten years ago. In a previous report the DWP had stated “we aim to help the pension industry meet the needs of employers and employees”. There is little in this paper that will give insurers, administrators or fund managers any certainty around which to plan. Instead there is a great deal of uncertainty to pick our way through and with it confusion and complexity.
There are threats against employers who don’t do the right thing:
“We have powers to stop a scheme from being used for auto-enrolment if its fees are too high or if members are required to pay for anything which doesn’t deliver them a pension benefit.”
The report continues:
“We could take action within months so the industry has every incentive to do the right thing.”
What is the right thing? Well it looks as if the 0.50 per cent AMC within Nest is being referred to as “the baseline level”, so maybe we are back to the days of RU64 when no new scheme could be set up outside the stakeholder cap (without good reason).
Again, I find myself frustrated by a paper which claims to be soliciting our support but is consistently “having a go”.
Why is not more said about the ‘defined ambition’ options which seem just stuffed in ? The defined ambition section of the paper reads like a google search which has been cut and pasted into a “brain dump for the minister”. Various ideas are rehearsed with some opinion thrown in but there is no coherent analysis of what is going on. This is not a briefing paper for Steve Webb, this is supposed to be the way the workplace savings market is reinvigorated. What we get is a series of half-baked notions but there is no sense of an author, an authoritative voice that sorts the sheep from the goats.
Some of the ideas are downright bad. The report even suggests we consider cutting out spouses pensions from our DB schemes to save the employers a few bob. What kind of message does this send to those annuitising today – “look after Number 1 and sod the missus”? This is from the Bernard Manning book of pension consultancy.
There are some great ideas buried in the DA section of the report but I felt like I was picking my way through a bomb site, recovering the odd treasure from the rubble.
And so the DA debate is no further enhanced and another opportunity to progress pension design has been missed. Cue more consultation leading to more consultation.
And in all the DC stuff, why no attempt to sort out annuitisation creatively? The paper rehearses the pin-dancing antics of the ABI, NAPF and various lobby groups for the use of the Omo without coming to any conclusion . The annuity market is in chaos, caused in no small measure by UK and EU interference (QE, Test-Achats and Solvency II to name but three). To suggest that the problem will be solved through promoting the Omo is like suggesting the Titanic should have had . Most people who have purchased an annuity in the last three years are underwater and the boat is sinking – some kind of lifeboat would be handy.
Why no analysis of the options and questions about them? The report has no numbers other than the odd table cut and pasted from a PPI or Pension Commission report. It is so lightweight that I couldn’t use it as a bookend (and at £10.75 a copy- an expensive one at that!).
Why is the analysis of the cost of guarantees so incomplete? E.g. what investments are assumed? All that we get by way of supporting evidence for the flagship policy of a guaranteed increment scheme is some flimsy contention from a vested interest, that a quasi with profits approach could be provided for an extra few basis points on the AMC. This might be good enough for a Saturday afternoon blogger but it is not what we tax-payers pay the DWP’s wage bill for.
If I was in Government right now I would be getting disenchanted. We get this totally woeful paper, they get to tick a box in their work plan.
It was not long ago that the DWP and their sister were on track to understanding workplace pensions. But since the publication of the excellent Enabling Good DC Outcomes in Workplace Savings Schemes, we have seen very little coming from either the DWP or The Pensions Regulator that takes us towards a better type of DC or a more realistic kind of DB pension.
This paper has the watermark of a department, Government and minister that has run out of steam. Time to reinvigorate the DWP.
Henry Tapper is director at First Actuarial