The pensions sector may not have received much of substance in the King’s Speech, with hotly anticipated legislation on decumulation, collective DC and other areas notably absent. Far easier to launch a consultation on an approach to DC pensions that would turn the current order on its head.
To be fair, what we are getting is a call for evidence on pot for life, which is less weighty in Whitehall terms than a formal consultation.
While there are many in the industry who think that pot for life will never see the light of day this decade, and given progress on the dashboard I am inclined to agree, what is clear is that the government’s approach is all about league tables, competition and shopping around, with Australia as its North Star, so to speak.
Engagement, ownership and a sense of self-control are all incredibly positive factors when it comes to retirement saving – factors that are in short supply across the bulk of UK DC savers. But at the same time, the list of potential risks that come with pot for life is long. Do we have more pressing things to focus on? Probably.
Professor David Blake of Cass Business School’s catchphrase that ‘choosers are losers’ springs to mind. Members of the public often make bad behavioural choices, buying at the top, selling at the bottom, chasing performance. Choosing a provider with good investment performance is always going to be challenging – like driving down a motorway while only looking through the rearview mirror. But there are other perils that need to be avoided too – cost being a big one. Expensive adverts, free cuddly toys and other cash offers can all tempt the unwary and uninformed – remember flat screen TVs? And all add cost to the system.
Then there are the regulatory challenges – The Pensions Regulator will see the number of providers it would have to monitor to ensure an employer has made the correct contributions increase exponentially.
What would happen to those wanting relief-at-source or net pay – although currently employees have little choice there too.
And most importantly, what would the break in the relationship between the employer and the pension scheme mean for member engagement and management buy-in? Linked to this is the cherry-picking of customers we would see from pot-for-life providers, leaving all the unengaged, generally lower earners, back in the default provider. This less-well-funded provider would have less resource to invest in a good proposition for those less engaged individuals. Vulnerable customers and those from ethnic minorities would also probably fall into this group in greater numbers.
Australia’s is a considerably more mature system than ours. I am not against the idea of greater member choice – it would improve engagement, which is crucial. But I can’t help thinking right now it will prove a distraction to things that could and should have been done – fixing trust-based decumulation and sorting the dashboard being at the top of my long list.
