While I am identifying my next venture in the industry, I am amusing myself with some consultancy work and looking at the machinations surrounding the introduction of personal accounts.
Has there been an outbreak of mass insanity? I understand that the Government wants to see a greater take-up of pensions, particularly among those of modest income. Wasn’t that stakeholder’s job?
Stakeholder offers us some very valuable lessons for the introduction of personal accounts. Rather than use the skills of their actuaries, pension providers meekly surrendered product design to the dubious technical expertise of Gordon Brown. It was his opinion was that advice was unnecessary and that costs could be capped at 1 per cent.
The Association of British Insurers initially said no deal but some providers broke ranks, even though others estimated that it might take seven years before stakeholder became profitable, with less optimistic providers estimating 15 years, if ever.
The take-up of stakeholder was abysmal without advice. As a result, millions have wasted 10 years of potential pension contributions – another generation lost.
This time, bizarrely, the charging structure of personal accounts appears to be handed to a yet-to-be-created delivery authority. Who will this be? Why do we trust the pricing to anyone who is not actually tasked with providing the product?
Ministers, civil servants and regulators have no place in this world. As recipients of inflation-proof Government pensions, they are untouched by the messes they create.
If we are to provide pensions to the masses, we need politicians to give cast-iron guarantees that such savings will not compromise savers’ access to welfare benefits. The Government also needs to accede that those who lean heavily on the welfare state throughout their working life cannot be expected to save and an alternative arrangement must be created for them.
At the risk of being labelled a grumpy old man, possible regulatory developments leave us old-timers thinking that nothing has been learned in the last 20 years.
I am particularly confused by the views of the FSA’s Dr Thomas Huertas, who believes that banks should be the way for the poor to get access to financial advice and that they should be absolved from any claims of misadvice by the application of retrospective regulation.
Somebody has been doing some slick lobbying. Are these the same banks that were the cornerstone of pension misadvice in the 1990s. Surely not? For readers under 40, a dose of retrospective regulation led to a multi-billion-pound reassessment of most of the pension sales of the 1980s. The banks were hit with over 70 per cent of the claims although they had sold fewer than 20 per cent of pensions. In contrast, IFAs had 58 per cent of the personal pension market but were hard-pressed to muster 10 per cent of claims. Surely if anyone is to be protected from retrospective regulation, it should be the low-risk IFAs?
The good doctor did not mention pensions in particular but I am sure the banks are looking at his speech and thinking of personal accounts.
What we need is some straight-talking from the ABI which clearly articulates that pensions are best designed by pension providers who have to take account not only of new sales possibilities but the rights of existing policyholders and shareholders.
Gone should be the pandering to a political elite who rarely have commercial experience and in should come the clear assertion that the industry already possesses all the skills necessary to persuade significant numbers of the public to save through pension contributions.
That requires cojones – something never to be found in a job description at Gresham Street.
Garry Heath is a consultant and can be contacted at firstname.lastname@example.org.