Brexit Mania Hits Pensions

The future of the well supported Pensions Dashboard is in doubt. And Brexit is the reason. The Government seem unable to consider anything other than Europe and our relationship within (or without) it. It means good local policy is being side-lined.

There’s a consensus that legislation is needed to introduce a compulsory Dashboard- a go-to place for all our pensions, held in one place and with all providers required to work with it . Everything in one place and set out in a standard way: What’s not to like?

Limited availability in the parliamentary calendar means the compulsion may not happen- or not any time soon.

With the legislation beginning to slip into the long grass, the Department for Work and Pensions (DWP) feasibility report including the broad proposals, has also been delayed. Due in March, then ‘late spring’, it’s still not here. The DWP are now saying it will appear 'in due course.' Yea, right. And of course, the DWP have no real incentive without a Government willingness to push forward.

One of the best and most far reaching ideas in terms of clear pension’s communication is in danger of not happening, only partially happening, or completely happening but at a date so far in the future we may as well go argue about Brexit.

It’s Not Just About Costs

The announcement today from the Government with regard to cost transparency is welcome. It should not be hard for members to understand what they are paying – and what costs are being charged for both administration and investments.

There is one concern though- a rush to the lowest charges may not mean the best deal. There needs to be care involved in explaining costs. A higher administration charge in some cases may mean a local company DC plan can continue, rather than being swallowed up by one of the big providers, or by a master trust. And there’s a good reason for that additional cost if the result is a plan that is better suited to that company’s workforce, as well as it being better presented and explained.

As to investment costs being more transparent- about time too! But again, take care in explaining that lowest charges don’t always equate with best returns.

As employers and providers, we can’t just rely on costs being understood. Members need to understand the value of their pension plan, the fact that it’s tax efficient and that employer money is being paid in as well. These are basic things, but so often still misunderstood by a workforce that is apathetic to pensions. The employer and provider can’t afford the same apathy.

As always, pensions will remain complicated. And it's not just about costs. Good communication is key. Enthusiasm from the provider and employer sponsor is key too.

Deferreds - The Poor Relations

I’m of that age. Time to start looking at what pensions I’ve got and to consider when to take them. It’s a bit of a shock to have reached such an age, I have to say! I’ve spent most of my career planning other people’s retirement and never really thought about planning my own. But there you go – time waits for no man and all that.

My first foray into my very own pension-land wasn’t such a success though. I approached a life and investment company that had taken over the liabilities of a plan I had been part of a long time back. And was rather surprised to be told I had no pension with them! I was able to produce a deferred pension statement, and all was sorted. But it does beg the question as to what would happen if I were less prepared. How many others fail to sort out deferred pensions due to poor record keeping? Or, more likely, having gone away and failed to notify the provider of the new address.

The usual tracing processes mean that eventually, the deferred member will (hopefully) be found and the benefits sorted out. But there’s no doubt that deferreds – especially in closed DB schemes – are the poor relations in terms of communication.

I hope that the new plans for a pensions dashboard will help rectify this. And there’s legislation on the way requiring an annual statement for deferreds as well. The more frequent use of emails in record keeping is helpful too, as many people may move house but not change their email address.

Nevertheless, as I found out personally, deferreds need a bit more attention.

As to the amount I’ll be getting, well let's say I won’t be fully retiring just yet!

 

Regulator in Danger of Decreasing Pension Membership

At an SPS conference last week, the Regulator's spokesperson talked of the need to encourage consolidation of pension schemes and how to remove the barriers to consolidation.

At the end of her talk, I challenged her. Is she saying 'big is good'?

She assured me she wasn't saying 'big is good' but then went on to repeat what she had said in the talk- the need for lower fees and economies of scale.

There's a problem with this for the small and medium sized employers that value the pension plans they have. They have put the plans in place for a reason, they value them and they promote them to their staff, with a high take-up. they own the plan- it bears their name. It was designed by them.

The moment they are forced to consolidate into something bigger, they lose the 'family touch'. They lose the ownership.

We have seen over the years what happens when the MD or FD is excluded from the scheme they own as a company. Almost inevitably, they start to devalue the scheme and lose ownership of it.

The same will happen with the Regulator's plan for consolidation. Quality plans will be closed - squandered at the altar of spurious reductions in admin and investment fees.

Ownership is lost. Membership decreases.

An own goal for the Regulator.

New Year Wishes

There will be a lot in the pensions press over the next few weeks relating to the New Year. A New Year goes along with New Year resolutions and wishes.

In pension terms, wishes are likely to revolve around simplified administration, easier investment access to difficult products and a plea to the politicians to be left alone. Some wishes may get granted- the current initiatives relating to data management are both welcome and likely to succeed. Investment products will simplify. And possibly – possibly – the Chancellor has enough on his plate not to interfere further in pensions.

The missing wish, though, is always there. Every year. Better communications. Too many people don’t know enough about their pension. Too many people without a pension are not concerned enough to do something about it.  

About now, with New Year resolutions in mind, the pension manager is returning to work and budgeting to communicate more efficiently. Maybe some focus groups. Maybe a survey. Maybe different methods of communicating including print and electronic.

Somewhere around mid-February, reality and the new budget process sets in and the dreams are forgotten. Another year of ‘doing what we’ve always done’ at as low a cost as possible.

So here’s a New Year wish. Please keep communications in your new year budget. Budget to use some pension communication experts. And change next years’ wishes.

Ten Pension Predictions for 2015

1.       A lack of clear and detailed regulation relating to the new pension freedoms.

As April draws near, many will be shouting loudly for clarity on detail, but it won’t arrive. Political parties will be in election mode and the April ‘new start’ will be hindered by poorly thought out regulation.

2.       Increasing pension scams.

Inevitable with the new pension freedoms. And frequent too, until the new systems get bedded in and the new government knows what to do.

3.       Appalling pension headlines.

Probably led by the Daily Mail as usual. People defrauded of pensions. People confused by the new freedoms. Anything to sell a paper.

4.       Quiet success with new products offering good customer value.

Probably won’t make the Daily Mail, but many providers will successfully navigate the new legislation and come up with quality, innovative products at a reasonable cost.

5.       New quality systems.

This has been ongoing since auto-enrolment was announced, but providers are making good strides with new data management tools integrated to pension provision. Again, unlikely to trouble the Daily Mail headline makers.

6.       Covenant worries.

No predictions here on a Russia collapse, Islamic militants and all the rest, but whatever happens in the world affects investments. And with that in mind, trustee covenant concerns regarding the remaining DB plans will increase.

7.       Adverts relating to not cashing in your pension.

As the new freedoms kick in, how long before we see adverts and articles relating to the need to think before you spend?  In Australia (a country we seem to be mimicking re pensions) it’s called ‘double dipping’ - people who spend their pension and then live off the Sate.

8.       Strengthened DC governance.

Whatever government is in power, I expect some firmer legislation around DC governance and management, akin to trustee governance.

9.       Pension Apps that work.

With a continued move to everything being in front of you on a smart phone, pension apps will come of age.

10.   Closure of small and medium pension schemes.

Whether DB or DC, there will be closures, mergers and buy-outs of smaller schemes, as the new legislation and auto-enrolment continue to change the landscape.

Pragmatic Steps Into The Unknown

I welcome the common sense approach adopted by the Treasury in not, after all, trying to fine individuals who take a pension pot and fail to advise earlier pension providers they also have benefits with.

The revised guidance extends the deadline from 31 days to 91 days and that states that only active providers need be contacted. This gets around the problem that individuals may well have pensions with providers that they have simply forgotten about. I know that shouldn’t happen, but not everyone loves pensions as much as me – and you, presumably, as you are reading this.

Common sense has prevailed.

The major problem remains however.  I’m not sure anyone, including the government who introduced the changes, knows exactly what is going to happen when the full freedoms on pensions come into force. Will there be reckless decisions to cash in pensions? Will advice be adequate? How will the government react to those who take, spend and then come back, begging cap in hand?

One thing is for sure. To change the analogy, the genie is out of the bottle and no future government will be able to put him back.

A pragmatic step by the government with regard to individual fines. But nevertheless, it’s pragmatic steps into the unknown.

NAPMI?

The announcement that the NAPF and PMI are likely to merge is an interesting one.

Both are citing improvements in management, pooling of resources and greater influence in the industry. But I guess it also reflects a decrease in DB schemes, traditionally the ‘bread and butter’ for the NAPF. They came to embrace DC rather late in the day and I’m guessing not so many DC schemes are interested in being part of (and paying a fee for) membership of the NAPF.

Of course, the NAPF gets a lot of support and income from consultants and providers as well, but if they can’t claim to be speaking for company pension schemes as well, there’s a problem.

As for the PMI, they came out of the Chartered Insurance Institute originally and have kept close to their original remit of maintaining and promoting pensions excellence through professional exams. I’m not so sure what’s in a merger for the PMI –unless of course they are low on volunteers which would be pretty essential for their continuation.

All in all, it’s a reflection of a decreasing profile for employer sponsored pension plans. And with auto-enrolment and the new proposed tax changes, that decrease will pick up pace as companies embrace standard industry products.

Not the happiest of backgrounds for the NAPF conference which starts today.

The Left Hand Doesn’t Know What the Right Hand is Doing

This is an oft-used idiom with a Biblical foundation (‘But when you give to the needy, do not let your left hand know what your right hand is doing’: Matthew 6:3). In its original context, it’s used positively. But we’re talking  pensions here and I want to use it negatively!

Professional Pensions writes about the decision to have a number of different organisations dealing with pensions guidance. There’s TPAS, the Money Advice Service, a new offshoot of TPAS and a new directly controlled Treasury operation.

Three organisations and four delivery mechanisms.

Back to the quote. On the basis that there will not be enough resource put in place, how long before chaos ensues?!

Crossing Pension Borders

The idea of a Pensions Passport is not new, but its time has come. To have one location that holds all your pension information from the multiple employers you have worked for, all in the same format and all readily accessible is something that can be done with today's technology- and should be done.

It should hold all the State pension data together with any and every pension from other sources -all held in the same way, in recognisably the same format.

Management of data has come a long way in a short time. This kind of thing is now achievable. Borders between pension schemes in the UK can be crossed easily in this way and the full information available for advisers means they can concentrate on the advice and not spend endless months gathering the information in the first place. There's a growing enthusiasm in the pensions press for a Pensions Passport and it might just promote enough enthusiasm to get the job done.

Failover or Fallover?

Another new word has just entered the pensions dictionary. Quoted in Pensions Age, Dixons Retail group pensions manager Gerry Phillips, talking of the new Profund Cloud service said “the automatic ‘failover’ capability within the service provides assurance to clients that service continuity will not be compromised”.

Failover? Does he mean the software security? Or is it a misprint and he’s talking about the new systems ability to ‘fallover’ at any moment?!

Google to the rescue on this one. Apparently it’s a technical term for a computer switching to a standby system if the first one fails.

So what happens when my failover fallsover? Good job I’ve got backup then….

Reshaping, Reforming, Refining - The Future of Pensions

A few interesting snippets in Professional Pensions this week, indicating changes to the pensions industry. The editor Jonathan Stapleton is quite right to identify Aon’s move to merge its pensions administration and HR processing businesses as the shape of things to come.

Pensions business is changing more rapidly today than ever. The large Defined Benefit plans are getting smaller. They’re all closed plans anyhow, so by definition, will decrease in importance. The admin, which might have been managed within a ‘package’ of fees covering the more lucrative valuation work, is now being exposed. Valuations are less and less big triennial events and much more ‘business as usual’ reviews at pretty much every trustee meeting. The complexities of yesteryear are lessening and the weeks of valuation calculations required of old have been replaced by pre written computer programmes with results at the touch of a button.

All this to say that Defined Benefit plans are not the monsters they once were and legacy administration merging with other processing makes sense. The administration of Defined Contribution plans is growing though, with an increasing numbers of members thanks to Auto-enrolment. Packaging is everything here. Simple plans, large numbers, computer processing, limited choice.

But behind the supposed simplicity of large Defined Contribution plans are hundreds of smaller ones, each with different rules, different needs and employers who often legitimately resist the pull to ‘merge’ with bigger plans and thus lose their identity.

With a combination of pressures on the pensions industry such as the recession and longevity, costs are a clearer focus than in the past. Providers will adapt. Providers will have to adapt, as Aon clearly are.

Admin is here to stay of course. And those plans too small for Aon’s radar will be picked up by smaller administrators. A changing pensions world. But not a decreasing one.