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John Lawson: Insuring trust

Master-trust DC schemes are being caught up in a moral maze

Despite having discovered its moral compass over the past few years, the pensions industry is in danger of doing the wrong thing on a grand scale once again.

The ending of compulsory occupational pension scheme membership in the late 1980s, coupled with the introduction of personal pensions at the same time, set the stage for a pension misselling scandal which drags down customer trust to this day.

Insurers, and some advisers, put their own financial inter-ests ahead of their customers’. It is not a period of our history that we will recall with pride.

It takes a lot of “doing the right thing” to restore trust and the insurance industry has gradually woken up to the challenge. 

The ABI’s Open Market Option code, which has recently come into force, is a good example, although insurers are already miles ahead of trustees in ensuring they do the right thing by retiring customers.

Another recent example is enhanced transfer values. Although the pensions minister, the working group and Margaret Snowdon, who chaired that group, should take the credit for the Incentivised Transfer Exercises code, it only works for enhanced transfer values because the insurance industry wants it to.

Insurers all agreed to sign up to the code, rejecting ETVs that failed to comply with the stated principles.

There are many industry actors who would love to ignore the code and offer cash bungs attached to less than fair transfer values, but they cannot because insurers have refused to be involved. The insurance industry should be proud of what it has done here. There is still a lot to do but the tide has turned.

Not so master trusts. Aside from one or two, these new schemes are promoting the concept of “offsetting”, where employers encourage staff to take cash refunds when they leave within two years. The employer also gets a refund, which offsets their automatic enrolment contributions.

If their moral compass does not tell them this practice is wrong, they should at least listen to the pensions minister Steve Webb, who said: “Taking money out goes against our overall goal of getting millions more people saving.”

Automatic enrolment is a great opportunity to further restore customers’ trust in pensions. But we must do the right thing by enrolling them into pensions that are good value, governed properly, transparent and easy to grasp.

And we should understand that the whole point of automatic enrolment is to get people saving for retirement. As the DWP says, we must “ensure that money saved in a pension stays in a pension”.

Just because the rules do not forbid offsetting, that does not mean it is okay. There is nothing to stop people ignoring the ITE code but insurers have rightly chosen to say no.

To the master trusts that congratulate themselves on their resourcefulness in facil-itating offsetting – shame on you. You should have said no. 

Doubly disappointing is that some of these master trusts are run by insurers.

John Lawson is corporate benefits head of policy at Aviva

 

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