For the past two decades the pension industry has stuttered from one crisis to another, from one scandal to the next, or so the media would have us believe. While commentators refer to a tarnished pensions brand, investors have avoided the tax benefits in droves, only to lose money in the buy-to-let boom and bust. The consequences have been a significant shortfall in retirement benefits and a mass market neither engaged in, nor saving for their future.
But we now have the chance to put the record straight. Over the next five years, we have a real opportunity – at country and professional level. An opportunity to make the most of pension reforms, to embrace auto enrolment, to implement effective and efficient default funds, to create strong governance frameworks, to help employers engage with their employees, and set the roadmap to deliver good member outcomes.
How will we do this? First, as advisers we need to move on swiftly from the RDR debate, which is coming for those still with their heads in the sand, and develop new business models and create value adding service propositions.
Why should we be so excited? Because our market is going to expand for the first time in years and in a sustainable way. And believe it or not, we also have the political agenda and the regulatory environment in our favour.
Embracing auto enrolment is the first step. I expect the employer community to divide itself into “the compliant” and “the engaged”. Compliant employers will (all being well) meet their minimum legal obligations, send their money to Nest every month and, with limited resources, not participate in the cause for a better retirement for all. An engaged employer will work with an adviser, expand their own scheme, look to encourage higher levels of contribution and operate high governance standards. This is our big opportunity – to help them.
So how can the adviser help the engaged employer? By focusing on their business, their people and returning to what they do well. This is not about being paid for idly enrolling members with no advice given (a redundant role post auto enrolment), or setting up or moving schemes and then stepping back. It won’t be for accepting a providers’ default fund as the solution for all and praying that it will deliver over time. In any event, with transparency of charging, I doubt employers will pay.
Advisers have generally prospered around their key strength – Know Your Client. This trait will become even more important in the future. Employers still want to offer good benefits; they want to offer employee protection; they recognise the role they can play in work place savings. Employers will be looking to distinguish their schemes from Nest, to build a new level of relationship through reward, benefits and engagement. So the adviser can help them design and operate programmes that meet their individual needs.
Nest represents an important development. Firstly, a public service corporation that can deliver affordable pensions for the smaller saver; that has to accept any member, any contribution, any pot size. But more importantly, it raises the bar; a new bell weather against which many will be judged. This is where the political and regulatory tail winds come in. We have a Government committed to a framework that is supportive of work place pensions; and a Pensions Regulator determined to set and uphold high standards of operation and member protection.
Some advisers will have more resources than others; some firms may find the new environment too tough to transition, hence an expected phase of consolidation. But this may have to happen if we are to deliver on the opportunity that reform presents. We need a well capitalised, innovative and growing adviser market; one ideally offering both advice and services to the DC pensions and benefits market. For those able and willing to make this step, the rewards will be good.
I hope that we can look back in ten years and celebrate real achievement. Imagine an active and successful DC market; engaged employees with trust in their work place schemes; an increased level of knowledge of what is needed to provide a decent retirement income and an acceptance of the need to accept risk in search of long term returns. Imagine a media that talks positively of the role of these schemes. And most importantly, I hope that the adviser community will have added the key ingredients – trusted advice, sound solutions and good outcomes that will have lead to the return of trust and confidence in our occupational pension system.