Pickering: Pensions policy is going in the wrong direction

Alan Pickering is one of the top pensions influencers. Best known for acting as trustee on a number of large schemes, he has held positions right across the spectrum from The Pensions Regulator (TPR) to the industry's biggest trade body.

But he had never set out to have a career in pensions; he worked as a railway rostering clerk in Yorkshire in the 1960s, before becoming involved with staff unions, which sparked his interest in pensions.

In more recent times, Pickering has been chairman of BESTrustees through which he acts as trustee on The People's Pension, and the Plumbing Industry Pension Scheme, which he chairs. His achievements were recognised at the UK Pensions Awards 2017 where he was voted Greatest Single Contribution to Occupational Pensions over 20 years.

What has been the highlight of your pensions career?

Every stage of my career has been a privilege. When I started work I never realised I would be involved in providing pensions. My parents always said they didn't care where I worked, as long as it's a job that's pensionable. Little did they know it would be pensions and pensionable - so that's been a bit of a double win.

But two stick out: one being chairman of the National Association of Pension Funds (NAPF) - now the Pensions and Lifetime Savings Association (PLSA) - because that brought together pensions, politics and business, which are all my hobby as well as occupation. To be chairman at the turn of the century made it particularly interesting because people were looking forward as much as looking backwards.   

The other was becoming chairman of the European Federation for Retirement Provision - being elected by Europeans from countries as diverse as Ireland, France, Germany, Austria and the Benelux countries.

What has been the most significant change in the past few decades?

The acknowledgement that there is an important role to be played by the state pension. It provides the bedrock on which everything else is built and the state, politicians, and taxpayers are the only movers in society who can provide a guarantee against absolute poverty in old age. There isn't a private market solution to absolute poverty.

And over the years, this hasn't been acknowledged across the political spectrum. There have been views that the private market could provide a guarantee against absolute poverty and that belief got translated into a lot of the prescriptive legislation that affected the running of workplace pension schemes. Politicians felt that they had the right to micro-manage workplace pensions because those were fulfilling a social security function, rather than offering an employee benefit. 

Barbara Castle and Steve Webb have each in their own way played a part in proving that the state pension has an important role. Castle tried to beef up the level of the basic state pension and provide a state pension lookalike for occupational schemes through State Earnings Related Pension Schemes (SERPS). She was spot on with the first but misguided with the latter; SERPS was very complicated and the contracting-out arrangements made the running of occupational schemes much more complex than needs be.

Webb acknowledged a private pension system would need to genuinely pay to save, and where the results of saving wouldn't be offset by means-tested benefits. Fixing the basic state pension above the definition of poverty means that it does pay to save.

They created an environment where hopefully nobody will challenge the appropriateness of the foundation of our pension system being taxpayer financed rather than market-based. 

Is pensions policy going in the right direction?

No. I hate to be negative but I have to say ‘what pension policy?' because I'm not sure there is a coherent one. Much is made through the rear-view mirror as a reaction against an event, often one that has been painful for those caught up in it.

The Maxwell scandal in the 1990s gave rise to legislation worse than the ailment it was intended to prevent. It created an intrusive and prescriptive legislative and regulatory environment that increasingly stacked the odds against running occupational defined benefit (DB) schemes. I'm a believer in regulation but also in principles-based regulation, rather than prescriptive.

The post-Maxwell Pensions Act of 1995 included the provision of guaranteed post-retirement increases. However, Maxwell was nothing to do with pension increases in retirement; it was everything to do with pensions theft while in employment. That prescriptive provision of guaranteed increases was but one more example of politicians punishing employers and workers who had chosen to have a good quality DB scheme as part of their remuneration package. 

Over the years, a whole series of legislative interventions have converted best endeavour into guarantee, and politicians don't realise that converting the flexibility of best endeavour into the inflexibility of a guarantee actually has a cost. When I wrote the government-sponsored paper A Simpler Way to Better Pensions, my central message was that we had created a pensions fortress, which enshrined the rights of those who were already within the fortress but lifted the drawbridge in a way that made it very difficult for future generations of workers to benefit from any form of DB provision.

And we are now seeing that giving rise to intergenerational strife; we have a retired population who are in general better off than previous cohorts of retired people, but we know full well that the next cohorts of retired people will not be so well-off and that is the result of well-intentioned intervention by politicians with layer upon layer of legislation. Each layer has been quite benign but the cumulative effect has been quite toxic.  

Given the mounting challenges facing trustees, do we need to go back to the drawing board on what they're being expected to do?

Yes. The trust model still has a very important role to play. It wasn't designed specifically to meet the needs of pensions, but it's an ideal vehicle that has not only stood the test of time, but is a very valuable mechanism for managing the time shifting of promises made today that are due to be honoured in 10, 20, or 50 years' time.

Where we've got it wrong is in our attitude to trusteeship. The regulator's 21st century trustee document is readdressing the balance; it is reminding us that trusteeship is a strategic overseeing function, rather than a detailed micro-management function. Trustees don't need to be able to conjugate a guaranteed minimum pension.

At the heart of trusteeship is delegation. They have to decide what they are going to delegate, who they are going to delegate it to, and then how to hold those delegates accountable and where appropriate to change those delegated implementers. I don't think that's a million miles away from many people's day jobs. 

We do need bright people so the job can be done properly, but technical qualifications aren't a synonym for intelligence.  People can be very, very intelligent even though they haven't got technical skills, but they've benefited an awful lot from their day job.  In that way, you get good governance and you avoid group think. 

If you were pensions minister for the day, what would you do?

I would establish a national pensions authority (NPA) to help society create a long-term blueprint for retirement savings, encompassing the role of the basic state pension, workplace pensions, and non-pensions savings. It would protect against the ‘somebody must do something about it' syndrome. It could be part of TPR, which is very closely involved with the implementation of high-level policy and also with the grass roots impact of implementing that policy.

If we had a mis-selling scandal, then politicians could refer to the NPA, which would come back with a considered view on whether what has happened is a blip or systemic, and whether we need to fine tune the system. Most of the knee-jerk reactions to pensions problems in the 1990s onwards have made the situation worse rather than better.

A longer version of this interview was first published in the UK Pensions Awards 2017 supplement.