PP Pensions Commission: The key pension priorities for the new government

In an exclusive roundtable conducted as part of Professional Pensions' PP Pensions Commission in the run-up to the general election, PP editor Jonathan Stapleton spoke to ACA chair Stewart Hastie, PLSA director of policy and research Nigel Peaple, PMI president Robert Wakefield, and SPP president Sophia Singleton about where they thought the new government should focus its attention when it came to pensions.

This is what they had to say…

 

What should the immediate pension priorities be for the incoming government. Are there any particular areas that should be focused on in its first 100 days in office?

Nigel Peaple: We'd like continuity of some of the things the Department for Work and Pensions (DWP) has already been talking about. First out of the blocks is making defined contribution (DC) fit for purpose. Obviously that's got something to do with increasing the amount of money going in and improving adequacy going up; but it is also about the breadth of auto-enrolment (AE); and DC decumulation.

As we all know, the 2017 review suggested introducing 18-year-olds into AE and having first pound savings. The last government had primary legislation passed through parliament and just needed to put some secondary regulations down. We'd like it if they push on with that.

And then equally we know there's talk about an Employment Bill; that seems like a great opportunity to get gig economy workers into AE.

Looking at DC decumulation, again we know that the DWP was working towards putting a duty on trustees to write a suitable product or scheme to ensure that people have retirement income supported by guidance.

So, the first thing I think an incoming government needs to do is crack on with the DC stuff that was already on the blocks.

There are also two other things. On the defined benefit (DB) side of things, we need to crack on with the DB funding code; it's there, please can we have it. And again, they've committed to doing DB superfunds; they said they had it all drafted, it just needed to get put into a Bill. So, it would be nice if they could do that. And there's all the work on surplus release as well.

Finally in my list of three immediate things to be getting on with would be the whole pensions growth agenda. The government has had the plans on value for money so let's push on with those. The DWP needs to consult on those so the Financial Conduct Authority (FCA) doesn't go too far ahead with its work on it. And we could do with hearing about the new government's thoughts about Mansion House reforms and any plans for a National Wealth Fund and the role that pensions might play in that.

Stewart Hastie: I agree with a lot of those points. I think continuity is really important, as is completing what we consider to be generally agreed initiatives already in train.

If we talk about that first 100 days, there are a couple of things that need to happen really quickly and there's a few things that we want to see coming through very soon afterwards but things that may take longer than 100 days to be fully enacted.

The things that are absolutely immediate would be the DB funding code as Nigel has mentioned. There are also some issues to do with the removal of the lifetime allowance (LTA) that need to be unlocked and dealt with immediately. We would also like to see continuation of and finishing off the whole dashboards piece. And we know that there is some stuff sitting there just waiting to be enacted around the CDC whole of life piece as well. So those are the top of the list immediate priorities: please don't get in the way of them.

And then it is into the points around clarity and certainty around what's going to happen and when the initiatives that Nigel was talking about – those around adequacy and the extension of AE, DB surpluses and so-on.

Also, if it is Labour that gets in and they kick off this review, I think the first 100 days should be about giving the industry clarity as to what the terms of reference of that review are as well as how they see that playing out and over what timescale. What we can't have, and what a lot of us fear, is that we will go into a two-year period where we just don't know anything. And that would create an awful lot of challenges.

Summing up, we've come off the back of a lot of consultations, a lot of thought has been given, and there's a lot of consensus within the industry generally. And therefore, taking forward the right things that are already in train is really critical as is making sure that any review backs that up with short to medium-term actions, and is clear about what is kicked into the longer-term and what's going to be dealt with in the short- to medium- term.

Sophia Singleton: I agree. I think that the really important point is there's a lot of very good and already agreed things that are in train and that just need to be progressed and taken over the line.

100 days isn't very long. So, if we prioritise transfer regs, getting those through; actually having unambiguous political commitment to the dashboard and pushing that forward; the DB funding code. And then we would add I guess the notifiable events regime and getting some clarity about some key aspects of that.

I think those were the top four on our list of things that just should move forward and not have any more debate on or be delayed by any potential review or anything like that.

Robert Wakefield: I come from a pensions administration background so when I think of things, I'm thinking about members. My worry is whenever there's a new pensions minister, they are going to come up with great ideas which are going to confuse members – often when things are done, members aren't considered enough.

The LTA is a point in question – and I think the whole issue of the LTA has been an absolute farce. So my message to anybody coming in is that I don't want you to rush anything. I want you to think about it. I want you to listen to the right people in the industry – and that includes people who deal with members, because you need to be able to explain things to members.

So, again, in first 100 days, get your feelers out, find out who are you going to talk to and who is going to help you do the right things for members. We can spend millions of pounds doing things that actually don't benefit members.

 

We have talked about the first 100 or so days but there are the longer-term priorities as well. Sophia, what do you think those longer-term pension priorities should be for the incoming government?

Sophia Singleton: I think for me it's in probably three areas. The first one is delivering the existing initiatives to improve DC member outcomes.

We were talking about adequacy and I think adequacy comes in two parts. The already agreed AE changes – reducing the age from 22 to 18 and scrapping the minimum earnings threshold – that's something that should be given priority. But, beyond that, establishing a clear plan to increase the AE contributions over a time frame and a methodology for doing that is really important. We need consensus on that but that's something that absolutely has to be looked at.

And then there are some of the initiatives that are already in train like value for money and having a standardised framework, supporting savers to and through retirement and the default consolidation that Robert was talking about. I think all of those are important pieces for DC member outcomes.

Longer-term, I think there are things to be done to look at how the pensions system can support the wider benefits, so financial wellbeing is a key part. We can play a role and should play a role in improving financial education and looking at additional tools and mechanisms to help financial savings. Productive finance has been mentioned already and how the pensions industry can contribute towards that. And then social care is a huge issue that needs to be thought about.

Stewart Hastie: I know you're asking about the long term, but there are things need to be cracked on with in the medium term and then there are more longer-term issues.

I think the medium-term piece is really about getting into adequacy. I would put equality into that as well – looking at areas such as the gender pensions gap and the ethnicity pensions gap. And we would be very supportive of all of the areas Sophia identified as well.

On the DB side, the DB surplus consultation needs to be taken forward and there is huge consensus in the industry around that – trying to enable some degree of value and being able to utilise some surplus that exists within private sector DB schemes to create better outcomes.

I think increasing innovation in risk sharing and risk pooling is also important, whether that be collective DC (CDC) or something similar.

All of this would then come back into what that might mean from a productive finance and an investment perspective. I think taking that all together is really important, there's a real opportunity there to look at it all in the round. But it needs to be that kind of medium term.

If I look further ahead, then I think priorities probably come back to things like addressing the triple lock issue with the state pension, which is something that needs to be addressed over the longer term. Obviously what happens to the state pension age also needs to be addressed, trying to make that more sustainable.

Dare I say it, I think pensions tax also needs to be looked at over the longer term, the next few years, and made more sustainable and planned.

Robert Wakefield: I think one word pops to mind and that's education. We know that the bulk of members don't understand lots of things. So that means we write a few more pages to send out to people, which will baffle them even more.

I think there really does need to be a proper sustained look at how we can educate people in general about, not just pensions, but wider financial matters. Sometimes what I find is you can start talking about finance with people and they're really engaged. And then you throw that really boring word like pensions in and it's like they've turned a light switch off in their head.

I really think the government should be doing some more longer-term thinking about what type of financial education they could be providing for people.

Nigel Peaple: I think as many of us have been saying, we need to have the government take a step back. It's about 20 years since the Pensions Commission and we should really be clear about what the objectives for the UK pension system are – how much do we people to get from the state pension; what we're trying to do with AE contributions; and so-on.

I think it would also be good to understand the incoming government's plans for the pensions market and the pensions landscape on both the DC side and the DB side and points between. What are the new government's plans for master trusts, for instance? On the DB side, what are their thoughts on consolidation, will they do a public sector consolidator? Are they going to be encouraging superfunds? Are they encouraging big funds to run on? Or are they trying to move everybody gradually to buyout?

Then I think the other important long-term point is maybe doing something better on the plumbing of UK pensions – on facilitating appropriate transfers and on connecting into the dashboard as well.

So, on a quite systemic level, I think we could do with a government early in its term to try and grip those and ideally get consensus from the other parties.

Robert Wakefield: Nigel. I think you're right. It's almost like we're like hamsters on a wheel in our job, just doing what we're given to do. What's our aim, what are we doing all this for? If somebody asked you to write down on a side of A4 what is the aim of the pensions market and what we do, we don't really have anything to say, do we?

Nigel Peaple: We don't seem to have a clear goal for the state pension at the moment. If you look at the DWP mission, they do have goals about ensuring that pensioners are protected from poverty but it isn't through state pension, it's through state pension and welfare and housing benefit and winter fuel allowance. It's a good start but at system level, it doesn't really work. There isn't really clarity about at what point might the triple lock not be needed any more because we've got the state pension doing the job that we want it to.

It's the same with AE contributions. Why are we all stuck at band earnings of 8%?  In the political world, there isn't really consensus about the purpose of workplace pension savings. In our industry there's a fair amount of support for 12%. I've heard lots of politicians say privately that that feels like a good place to move to. But there isn't really this clarity of the objective. And I just think that having such clarity might help secure a consensus for the future.

Sophia Singleton: I think this links to the possibility of an incoming government having a pensions review. And you then ask what's the scope of that review? Our very strong view – and I think from what everyone else has said we probably all agree on this – is don't let a review stop any of the current things that need progressing. Let's keep going with those.

But we probably would welcome a holistic review in certain areas like Nigel has just raised.

Agreeing the scope of that review early would be very helpful – not making it an all-encompassing back to basics root and branch review but looking at certain things like adequacy, clearly it's a key one. We've also talked about long-term care, we could all add things to that list. But keep to those confined scopes, and look at them holistically.

Stewart Hastie: I couldn't agree more. I think that was probably one of the points I was trying to make – the first 100 days needs to include the articulation of what a review might cover. And the terms of reference for it.

I think adequacy, equality, member or saver support as well as investment, productive finance, Mansion House and DB surpluses are probably all part of this.

But what I do worry about are things like consolidation – consolidation in itself doesn't feel to me like an objective, that feels like a means to an end. It's not clear to me what they're trying to achieve from that.

The government has got to look at the whole pensions system as we do – how does it apply to the savers and members that we look after. I have a very strong view that the employer/employee link is a really fundamental cornerstone of good provision of pensions and savings. It's a trusted relationship, it is one that can benefit from economies of scale and provide the support in the right way. And I think anything that damages that employer/employee link is dangerous.

 

Do you think there is any areas of pension reform currently being worked on that should perhaps be either de-prioritised or dropped altogether?

Robert Wakefield: Small pots and lifetime provider model. What I see has been an ongoing thing about lost pots as well as small pots. We keep having all different sorts of ideas. We seem to discuss this a lot - it just goes on and on and on.

Whenever I listen to discussions about the lifetime provider model, we've always got loads of reasons why it won't work. And I'm thinking, if people still think like that, then we haven't got a viable solution.

Should we say it's too hard for the moment and wait to see how well the dashboards address this problem first?

Nigel Peaple: The PLSA, like a lot of the pensions sector, would like lifetime provider to be firmly dropped, and member choice for the time being. Maybe in ten years' time, when people are much more engaged and dashboards are up and running, then you might be able to manage to have a world where people engage and make the right choices with value for money information about performance and cost.

But right now, we don't think it's the right thing. One issue is the weakening of the employer link. And we also know that members don't really understand the information they receive.

So, I'm hoping that that one will just be put back in the drawer for five or ten years until a time when the market has matured and we've all moved on a bit.

Sophia Singleton: At the top of my list was lifetime provider model as well. Not for now, as you say Nigel – it might be a longer-term thing to consider.

The other thing on my list is the DB public consolidator on the basis that it has got the potential to disrupt an already well-functioning market. The small schemes seem to be served by the existing market so we think it's probably not needed. If a new government does decide to pursue a public consolidator, however, it needs to be designed very carefully with a fairly limited scope to avoid, as I say, disrupting a well-functioning market.

Stewart Hastie: I also think the public sector consolidator is a concern. If it's going to be taken forward, it has to be quite limited in scope.

Also, as I have already mentioned, the employer/employee link is quite an important and crucial area and we don't want to see that damaged, which we think could be a backward step in terms of adequacy and support. And models that might work overseas have their issues and we are at a very different starting point to where those models were when they were introduced.

The wider point I would make is on large wholesale market consolidations. Given the intricacies and how this ties into investment markets and capital markets, I think it could spook markets by doing wholesale massive amounts of consolidation in a short space of time, which is not something I think a new government should be doing.

 

If you had a single message to give to the incoming government, what would it be?

Stewart Hastie: Fundamentally we've had a very busy time of consultations and considerations and all sorts of things. What the industry just needs is clarity and certainty. I do think there is a great opportunity to try and support some really important initiatives around growth and improving how we are dealing with adequacy, which are, or should be if they're not already, key government policy directions for the new government. But I think it has to be done in the right way. And I think if we can bring that together in a way that creates clarity and is planned and certain, then that would be ideal. That's my message.

Sophia Singleton: At the SPP, our key immediate ask is not to rush. Take sufficient time to review the market and consult with the industry if you want to make changes. Keep going with what's already in train but, for new changes, allow some time for those to be tested and to consult. We've seen examples where pensions policy has been taken in haste to the detriment of members – the most recent example being the LTA change. So, take some time, don't rush.

Robert Wakefield: Two things. Pensions is not a way for governments to raise revenue or get their hands on money – it is about people at the end of the day. Also, I would encourage the government to engage more with the industry at the outset – as Stewart said, there have been lots of consultations, but I sometimes feel they've already made their mind up by the time they come around. In addition to this, government should get talking to the right people in the industry so that their decisions are better informed and not motivated on generating money for the Treasury.

Nigel Peaple: The PLSA perspective is very much in tune with the points that everyone has just made. On DC pensions, we need to get more money going into them and we need to make sure that people use the money wisely when it comes out. And then secondly, on the whole investment and growth piece, don't restrict fiduciary duty. It is important that the money is spent in the interests of scheme members. If they can do other things like save the planet and help the UK grow, terrific, but we really must keep focused on the members.