After 30 years at the helm of the Pensions Management Institute, outgoing chief executive Vince Linnane shares his wisdom with Sara Benwell
They say never interview your heroes - I would add especially not when they’re retiring. For there’s more than a slight tinge of sadness when I meet Vince Linnane at the Pensions Management Institute offices in Liverpool Street.
It’s hardly surprising. He has been at the helm of the PMI for a decade, and involved with the organisation for another two. No mean feat in a world where most people only stay two or three years at any company.
In fact, according to Linnane, this shift in working patterns is a modern cause of friction.
He says: “If you woke up from a 30-year daze, you wouldn’t recognise the pensions industry. It’s a shame… it was said that we had a pensions system that was the envy of the world, but from 2000 for a combination of reasons it’s unravelled into a bit of a mess, and that’s desperately sad.”
One thing he thinks is missing from the pensions landscape in 2016 is the measured certainty of the old order. And he’s particularly concerned about people running out of money.
We keep saying ‘oh you’re going to have to work until you drop’ - but working doing what?”
He says: “The figure being bandied around with John Cridland’s review are that you are going to be working until you’re 75 before you qualify for a state pension. But if you can access your pension at 55, whether you blow it or you use it to pay off debt - what does that mean for people between 55 and post-70?
And the idea that people will work longer doesn’t cut the mustard. “We keep saying ‘oh you’re going to have to work until you drop’ - but working doing what? It assumes that the person can carry on working, they want to carry on working and their employer has a role for them. What if those situations don’t exist?” he asks.
This is quandry for employers. As the UK no longer has a compulsory retirement age, it becomes difficult to manage the workforce, particularly if those who want to retire can’t afford to.
He explains: “You can’t move people on, so how do you deal with it? To manage people out of the workforce takes forever, it assumes a massive amount of management time, and what kind of atmosphere does it create?”
Linnane is keen to impress on me that he doesn’t have all the answers, but he does point to three things he thinks may help.
1) How much do we put in?
Linnane agrees that people need to be contributing more, arguing that 8% of qualifying earnings will leave “virtually everyone” with inadequate retirement income.
At the same time, if you make people aware of this he thinks people may “give up the ghost altogether”.
He explains: “It’s difficult, because you don’t want people sleepwalking towards retirement believing that the relatively small amounts they’re putting in are going to guarantee them a decent retirement.”
He believes auto-escalation (or something like it) could help. But he also thinks companies need to provide a good matching structure. “Better matching and looking at what the best companies do for their defined contribution schemes and making that the goal should be aspirational,” he says.
2) Where does the money go?
Of course, putting more money into a pension scheme will only work if it’s going somewhere safe. And Linnane, like many in the industry – thinks that there are too many DC schemes. He believes better consolidation would bring “scalability, greater transparency and the kind of collective resource seen in Holland”.
The ease at which a mastertrust can be set up is scary”
However, he’s quick to caution that consolidation itself could cause problems, and he’s deeply concerned about governance problems in the mastertrust market.
“I know [the Pensions Regulator’s] Andrew Warwick-Thompson has said there’s got to be consolidation of mastertrusts to get it down to 6 or 7, but the ease at which a mastertrust can be set up is scary. It’s not good enough and it needs to be tightened up,” he says.
3) The rebirth of annuities
His final concern is at the other end of the process. Linnane believes we need more security of income post-retirement. And he’s worried about the shift away from annuities.
He says: “We’ve got a schizophrenic situation at the moment… You’ve got a measure of compulsion on the way in, but you’ve got a laissez faire, ‘do what the hell you like with it’ [approach] on the way out. It strikes me as a mixed message.”
He finds it difficult to envisage a situation where defined benefit comes back, but is relieved that there is better awareness of the risks people face in DC. And thinks we need solutions that offer greater security.
He says: “Whilst annuities were rigid and inflexible there has got to be some measure of safeguard put in. Something needs to be put in place ensure a constant stream of retirement income rather than the ability for people to blow it all at once.”
Less meddling, more support
While he believes that guaranteed income, better consolidation and higher contributions could help make DC pensions better for retirees, all of this needs to be underpinned by a government that supports the industry.
He says: “I wouldn’t necessarily say that the freedom and choice initiatives are bad but it was launched onto an industry with no consultation and no warning… For something as complex in the world we work in, you can’t have ad hoc improvisation.”
He’s also worried that the Treasury uses pensions as its own personal piggy-bank without thinking through the consequences.
He says: “There seems to be a more overt and obvious tug of war between HM Treasury and the Department of Work and Pensions than has ever existed in the past and I largely suspect the chancellor is just looking at ways of accessing pensions money earlier.
The chancellor is just looking at ways of accessing pensions money earlier”
He adds that “less dipping into pensions to sort out short term needs” is a plea he would make to Chancellor George Osborne.
It’s only natural to ask what the future holds both for Linnane and for the PMI. He’s not 100% sure what the next step will be, but he does tell that me he’s not going to quit the world of pensions entirely.
As for the PMI, Linnane is hoping that the organisation will continue along the path of modernisation. He says: ”Over the past few years, we’ve made PMI more proactive in engaging with key industry stakeholders. We are more adept at getting feedback from companies about what they want to get out of the PMI.
“Everybody I’ve worked with - pension managers, administrators, consultants or investment managers - have been universally decent people and I’m proud to have worked alongside them.
”My own colleagues and staff at PMI have really put in a shift and I hope that our members are aware of just how much work gets undertaken here at PMI.”