Blog: DC 2.0

Say what you will about pensions minister Steve Webb, he is a journalist’s dream. I’ve spent quite a few evenings now in his company (along with at least 20 other people on each occasion, I hasten to add) and every after-dinner speech that he’s made has contained a nugget of news or a debate-worthy topic casually dropped into the conversation.

At the NAPF Chairman’s dinner this week, the gossip he offered to us was his idea of ‘defined aspiration’ pensions – a hybrid style of scheme sitting somewhere between DB and DC, with less burdensome regulation than the former and less member risk than the latter. It would help members better understand and have more confidence in achieving their retirement financial requirements.

While ‘defined aspiration’ might be a working title, even the hint of an idea of more flexible regulation around DB and DC is incredibly welcome. Nothing could really be expected to save defined benefit in its current form, but a more elastic regime could still ensure that members receive more certainty in their retirement than current DC arrangements could ever muster.

Could this be part of broader changes that are afoot in DC – perhaps even adding up to a ‘DC 2.0’?   I’ve spoken to a number of trustees of established trust-based schemes recently who have conceded that, despite originally designing their schemes with the best of intentions, they are now reviewing their entire structure.  New schemes such as the excellent setup put in place at Heineken, also have access to default fund strategies and communication tools that older schemes could only dream about.

Auto-enrolment has helped, raising the profile of super trusts and master trusts as alternatives to the traditional single-company trust or contract based schemes. It has also broadened out options in the DC market for default funds and engagement strategies and generally forced providers to improve their game.

Added to that, we have the mistakes of the past to guide the future. 100% equity default funds are plainly not a good option - but we are also beginning to refine lifestyle strategies and to see flightpaths that make the move from growth assets into lower risk investments much more sophisticated. There is greater acknowledgement that individuals’ retirement plans may well change over time and that pensions have to change with them - and the tools that funds have at their disposal to keep members in touch with their pensions are now more sophisticated.

To help ‘DC 2.0’ on its way, however, regulatory change of the type that Webb alluded to this week is vital. Even the finest of risk-based, results-driven well governed DC schemes is currently hampered by legislative limits and the piling of risk onto the member.  The important thing, though, is that any new legislation helps spread the risk and improve the returns - not simply tie providers, employers and members up into knots.

 

27 January, 2012: The Financial Conduct Authority has a vital role to play in the success of auto-enrolment

And so, farewell FSA – hello FCA. Today we got to learn some more about the Financial Conduct Authority, the body that will replace the Financial Services Authority as the watchdog for consumer investments. The Treasury has released a document detailing the responses from its consultation into how the new body will run, and what it will do.

But from looking through the Treasury’s  document, will swapping out an ‘S’ for a ‘C ‘ really make much difference?

The FSA  has been routinely shot down in flames – the mis-selling of inappropriate financial products to pensioners, the over-selling of unnecessary loan protection to home owners and the destructive practices of banks being just a few of  the transgressions that it failed to spot, let along prevent. The Treasury Committee will not mourn its passing, criticising it for its ‘box-ticking culture’ and general aloofness.

To prevent such horrors besetting the FCA, the Treasury’s document calls for publication of board meeting minutes, transparency around the panel and its processes and greater accountability. All of these are the clarion calls we would expect to drive improvement over the vague and unwieldy structure of the FSA.  But knowing more about how the board is structured really isn’t the problem. How it spots bad practice, and what it does once it has identified it will define its success.

 

Will swapping out an ‘S’ for a ‘C ‘ really make much difference?

The FCA will be the body responsible for regulating insurers and asset managers amongst others, so the world of pensions will fall under its remit from several different angles.

While the Pensions Regulator might be responsible for ensuring that employers meet their auto-enrolment duties in setting up eligible schemes for eligible staff, what happens to that money once it goes into an investment fund in a contract-based scheme becomes the concern of the FCA.  Equally, how that money is spent with annuity providers or income drawdown specialists will be on the FCA’s plate.

Once auto-enrolment starts, it will live or die by the publicity that surrounds pensions. There must be no shocks to the system and no negative publicity if savers are going to build trust and remain in pensions for the long term.  If there is even the slightest hint that funds are not being managed transparently and honestly then opt-outs will soar and the whole project will fail.

Much rests on the ability of the FCA to make sure the system runs smoothly.  It had better be up to the job.

 

 

 

5 December: Photographing the 50

Maggie Williams attends the photoshoot for Pensions Insight’s 2012 50 most influential people in pensions

It’s been all go at the Pewterers’ Hall today as we’ve been running the photoshoot for our 2012 50 Most Influential People in Pensions feature. It’s a great venue - some beautiful views of the hall - the perfect setting to celebrate the innovative talents of our industry! Look out for the feature, due to appear in our Jaunary 2012 edition - on a desk near you from the 22nd December.