Everything you wanted to know about workplace pensions, but was afraid to ask…

The latest Raconteur Workplace Pensions supplement is out today and is distributed with The Times.

It covers articles on auto enrolment, pension scheme investments, pension scheme derisking, state pension systems, default funds and the centre spread is about employee share schemes.

Get your copy today or CLICK HERE for an electronic version.

Webb’s proposed reforms lacking in definition and ambition

I have long been a fan of Steve Webb in his shadow role and latterly as pensions minister. He has demonstrated a level of commitment, engagement and let’s face it, basic intelligence, that some of his predecessors were sorely lacking. But I’m starting to think that the DWP’s output is starting to resemble that churned (and I use the word advisedly) out under the previous administration; ill-considered, sketchy and just plan daft.

The idea there are employers who wish to offer greater certainty to their workers over their retirement income is heartening. I have great sympathy for employers who wish to do more than the minimum and applaud their paternalism and said as much during a debate at the PMI’s autumn conference where I (and John Ralfe) argued against collective defined contribution (CDC).

All or nothing

For my money, pure CDC doesn’t work conceptually, as it requires a massive amount of consolidation of schemes. Now, I understand that may not be unpalatable to many employers who don’t really want to run their scheme. But they’ll still want a say in what gets spent on paper clips and so it won’t be for everybody.

It also requires everyone to be in the same boat to ensure the continuity of a cross subsidy, otherwise, my generation will benefit from the proposed reforms at the expense of the next.

In any case, I can’t see many employers wanting to do this. After two decades of ball-breaking pensions regulation, like any divorcee, they want a break from commitment. Auto enrolment, particularly at these low inception levels, allows that.

You probably disagree with everything I have said. Even if we don’t have a root and branch change of the structures, what I don’t like about Steve Webb proposals is the detail – what little there is.

DB until you leave

As at the NAPF conference, he hints at a raft of possible options open to employers, from providing insurance backed guarantees for which “the figures don’t look too scary” to limited DB. Oh, unless you leave the company, of course, then it is a cash pot.

While I understand the desire for employers to avoid the cost of funding the futures of former employees, this is a fail from the policy wonk who dreamt this one up.

We all know there is no such thing as a job for life any more. The chances of pursuing a single career is also a concept consigned to history. The possibility of someone being somewhere long enough to accrue a meaningful DB pension is also very slim. And if such people do exist, what is the effect on human resources strategy?

In an environment without a normal retirement age, what will stop people sticking around simply for the benefit? It doesn’t sit well with DC delivering a more flexible structure to suit a changing workforce. You have a system that doesn’t adapt to a non-changing workforce.

Webb’s idea is that you can have a DB promise but if you leave, you get cash instead. Which, unless I am very much mistaken, is what happens in DC. So what is that cash amount based upon? And how has the fund been invested – for the benefit of the individual DB/DC member or the benefit of the long term ambitions of the scheme and therefore the sponsor? How do we ensure investment aims are aligned?

That is a lot of questions for which we don’t have the answers. And nor does Webb.

Let’s fix DC first

Ultimately, my biggest problem with this debate is that we have only just embarked on the journey to universal DC coverage. We know it isn’t enough and that compulsion would be preferable, if unpalatable for the politicians.

Compulsion would allow tax relief to be raided – why offer relief if you have to be in it – but the Tories can’t allow that as it would cause their middle Britain support to implode. Not to mention the danger of China syndrome near the Daily Mail offices.

Webb’s choices are in danger of muddying the already murky pension waters.

Instead of looking for ways to bridge the gap to DB, why not establish a system of gold-plated DC pensions that can be the envy of the world?

We should provide safe harbour for companies who wish to do more than the bare minimum so they know any good deed they do will go unpunished. Instead, by implementing auto enrolment and satisfying a minority – for I bet my bottom dollar it is a minority – who want to do more, we are in danger of doing neither very well and undoing all the effort expended thus far.

Vested interests

But that’s not the way the world works and those lobbying on behalf of change know it.

Anything along the road towards defined ambition brings complication. Without complication, there is less need for advice.

In the brave new DC world, many firms will be starved of the oxygen of consulting work and there’s no future in that.

So, it’s back on the lobby treadmill to deliver a system that few can understand and fewer benefit from.

Oh, and if you’re wondering who won the debate at that conference, I can confirm that John and I managed to turn around a sizeable lead into a crushing defeat at the end of our presentations. Just goes to show that what people really want is choice, I suppose.