Personal accounts is never out of the pensions press. But the latest spat between Conservative pensions shadow Nigel Waterson and DWP pensions minister Angela Eagle over the length of the implementation programme means speculation over the future of the project has never been more intense. Some commentators are suggesting personal accounts will never see the light of day, but for Paul Gilbody it’s business as usual.
The delay at the centre of the row has doubtless been in part based on delivery projections given to Whitehall by Pada. So given the fact that there is a fair chance Waterson could be his boss in seven months’ time, what does Gilbody make of his recent pop at Pada over the lengthy lead-in time?
“The DWP, as you know, is totally responsible for policy. If the Minister decided that we had to get it all done in 12 months then we would all cry, but then we would get on with it and do it because that’s what we had been told so,” says Gilbody. “But the fact of the matter is that one of the main reasons why the Minister and the DWP have come back with a 36 months staging proposal is that that is a reflection of the enormity of the task.”
So was the lead-in time extended at the request of Pada? “It was following feedback from a range of people. But we have been honest with the DWP, offering them advice and understanding on what we think, and rolling this number of people into something is a sizeable task. We are talking about potentially more than 1 million employers,” says Gilbody.
Gilbody does not see any inconsistency in Waterson’s calls for a review of personal accounts on a Tory government taking office. “If you look at Nigel’s comments at the Corporate Adviser Summit last year, it has always been the intention of the Conservatives to review the policy in 2010. You would not expect anything else,” he says. “But there has been nothing said that would make me believe that they would look at an alternative to personal accounts, because the problem is not going to go away. We have built up a huge level of consensus across industry, political parties, business communities and employees and that is not an easy thing to do. It is certainly not our expectation that this gets brushed aside.”
The personal accounts project has certainly sparked soul-searching in the workplace pensions community, but does Gilbody think the exercise will ultimately lead to improvements in the way the private sector deals with things?
“We have probably started the debate on building a default fund for the target market, which I don’t necessarily think has happened before. Whether this will trigger a wholesale review of the strategy of every pension fund remains to be seen.” he says. “But it would be good if we began with a new name for default, although I haven’t got one yet.”
Gilbody’s role at Pada is to develop the product proposition, but with much of personal accounts determined by statute, where does he have room for manoeuvre?
“It is mainly around what the overall proposition is. For example, do we want to have just a default offering of 8 per cent and offer employers the opportunity to use personal accounts for basic pay upwards. So one of the things we did some research on early in the review was talking to a range of employers and intermediaries and to decide whether they wanted to consider personal accounts as an option for anything other than just qualifying earnings,” says Gilbody.
That might relate to whether the Trustee Corporation accepts contributions from zero pounds up to £5500 of income, for example where employees’ income falls below the top earnings band, but pay in more than 8 per cent, provided the total is below the annual contribution limit, or where schemes pay less than 8 per cent, but with a higher earnings limit.
“People can use a personal account scheme as they see fit but clearly its role has been for the 8 per cent in the band earnings. But if the Trustee Corporation wants to, it can launch the product and say ‘here is one option, you can use it for this, but as long as you meet the qualifying contribution limits you can use it in other ways as well’.”
The other part of Gibody’s job is taking the personal accounts proposition to market. “We did research on who employers talk to to get information on pensions in the workplace. What was quite surprising was not that they talk to EBCs and IFAs – obviously these guys have a significant role to play – but the number of employers who spoke to us and said that they regularly talked to their accountant about pensions and not necessarily just about payroll, but what to do about pensions generally. The research told us that for employers – from the very smallest to the biggest – accountants were really important, and to a lesser degree solicitors,” says Gilbody.
Trade bodies and associations will also be important in the communication message in the run-up to 2012 and thereafter.
So will Pada and the Government be telling employers that an accountant will be the person to sign them up for personal accounts?
“Not necessarily, no. I’m seeing the accountants’ role more as informing the employer around what 2012 is, what they need to do and what their possible options are, and perhaps signposting them to an IFA or an EBC if they are a large organisation,” says Gilbody.
The Government is planning generic advice for individuals confronted with the decisions posed by personal accounts. But will there be any generic advice for employers as to where to get advice about selecting a scheme, be it personal accounts or a private sector solution?
“Not from us, no. The oversight of the money guidance which is aimed at individuals comes from the DWP, who looks at what the changes mean for employees. Obviously the Pensions Regulator will have a role in communicating how you comply from an employer’s perspective, but from us, no,” says Gilbody.
In a bid to minimise the risk of levelling down, Pada has been charged with creating a scheme that complements rather than competes with what the private sector is currently offering. So how does Gilbody demonstrate that this has been the case so far?
“I think the fact that everything we are doing is serving low- to medium-income employees. We are not doing what current providers do when they go in after more affluent members, with a larger fund range or offering unique opportunities through a Sipp. We are simply putting in place a scheme with a very small fund range that is specifically designed for the ground level, for low to medium earners,” he says.
“You could describe it as being like designing the world’s best mobile phone for only receiving and making mobile phone calls. We’re not bothered about having an MP3 player or a camera.”
Gilbody comes from a private sector background, having had spells in product development at providers such as Legal & General and MetLife. So what does he think will be at the centre of the industry’s attempt to differentiate itself from personal accounts?
“Fund range is an obvious one, and communications as well. I don’t see personal accounts offering bespoke communications for employers.
That is not our game. I see a real opportunity for providers here. And clearly we have got the transfers ban and the contributions limit. It would be relatively straightforward for existing providers to distinguish from what personal accounts will be on the grounds of flexibility and choice,” says Gilbody.
Pada’s own range will of course be limited. “We are looking at a fund range in single or very low double figures. If we go for a religious compliant fund it may be necessary to charge a slightly higher rate. The Trustee Corporation may decide it doesn’t want to subsidise that with everybody else’s scheme, but that’s a decision for them,” says Gilbody.
Pada chief Tim Jones has been talking up the technological basis of delivering personal accounts, mentioning mobile phones and channels such as eBay and Facebook for accessing the scheme. Will this happen?
“If you look at how technology has progressed in the last five years and project that to 2012 or 2015 then the idea of being able to log in through your mobile phone is achievable,” says Gilbody.
“But we need to make sure this is fit to purpose is the way people engage with it. With long term savings, you don’t want people engaging too much. Mobile phone is something for the future. Digital TV has been considered, probably not for launch but again maybe for the future. The web is the key channel,” he adds.He is unconcerned at the issues raised in some quarters about the prospect of overseas providers housing personal accounts.
“First of all, we don’t know for sure whether the data will be held overseas. At a seminar someone asked why we have got an Indian car company bidding to run the scheme. But this public sector procurement procedure is incredibly robust and it does get the right answer. The fact that they come from companies that are not household names is not indicative of the quality of the companies. We could have chosen four people that everyone has heard of, but if by doing so we had dismissed four better companies, we would rightly be shot,” he says.
One of these four has now pulled out of the procurement process, and one can only speculate on the effect the question marks over the whole project will have on the attitude of the remaining three. But whatever happens, the Pada team remains committed to fulfilling its duty to deliver a scheme up and running in less than 24 months. ncorporate adviser november 2009
All about Paul Gilbody
- Graduated in 1996 with a degree in Business Studies
- Started work with Marks and Spencer on their graduate training programme before joining Prudential in 2000.
- In 2005 joined L&G and led a strategic review of the employed sales force in addition to heading up the proposition development in the corporate pensions division.
- In 2007 moved to MetLife Europe where was key in the design and implementation of their recently launched pension product.
- Enjoys travelling, running and cycling
- Lives near Guildford in Surrey with wife and two young children
The Pada default fund managing millions of reckless conservatives
Mark Fawcett, investment director, Pada
“For us persistency of contribution is as important as investment returns for our membership who are more risk averse than the general public. We want to build confidence in the fund. In the initial years how much investment risk you take has very little influence in the final value of your fund. We ran some simple models on what returns you would get if you were 100 per cent invested in equities versus 100 per cent bonds for the first 10 years of pension saving. And the difference in fund value after 25 years is just 5 per cent. But we haven’t decided yet how long this low-risk period will actually be.”
Fawcett accepts that matching the risk profile of the default to the demographic is difficult without adversely affecting long-term returns, but hopes even personal accounts investors will become more comfortable with issues around risk and return with time.
“Managing risk is complex but if you look at Australia, where they started in the mid-1980s, a whole culture of knowledge of savings and investment has increased. We would hope that people take more interest in pensions and become more interested in investment opportunities and risk.”
“We are going to launch target date funds
“Yes we have cost constraints, but we think the default fund should be as diversified as possible.”