Gregg McClymont may be the latest in a long line to hold Labour’s pensions brief, but he has won over many sceptics. David Blackman listens to his vision for the industry
When Gregg McClymont was named opposition pensions spokesman in late 2011, the reaction from the industry was a barely concealed sigh. It had nothing personal against McClymont, who had only entered Parliament the previous year.
The highly rated Rachel Reeves, who had been given a fast-track promotion to the shadow Cabinet by her party’s leader Ed Miliband, had just become the latest in a long line of Labour politicians to fill the pensions brief. So McClymont, whose CV includes a spell as an aide to ex-Labour home secretary John Reid, had his work cut out to convince the sector that it should take him seriously.
Eighteen months later, McClymont has won over many sceptics just by still being there. A natural affability has helped, as has the sharp tongue that was on display at last November’s Society of Pensions Consultants’ annual dinner.
Now McClymont is seeking to burnish his credentials in the way that the former Oxford history don knows best, by penning a meaty pamphlet in which he outlines a Labour vision for the future of pensions.
We have to be clear and confident that the private pensions market is ready to take on the slack
He jokes that the pamphlet, which has been published by the venerable Fabian Society, is “very long and very exciting”.
But he is deadly serious about the prescriptions outlined in the document. The industry should take notice, given that it outlines the direction of pension policy for what could be the next government, if the opinion polls are any indication. The starting point for McClymont’s thinking is that state pension reform will make people more reliant on private provision.
“We have to be clear and confident that the private pensions market is ready to take on the slack,” he says. He is worried that it will not.
“The private pension market, in the widest sense, is not fit for purpose,” he states bluntly. The problem, McClymont argues, is that the workplace pension market is not one made up of informed consumers.
This is not like a market for a can of beans
“This is not like a market for a can of beans. This is a market where there’s an asymmetry of information between providers and consumers. “How do we get to a situation where we can get the best deal, given this fact: a realignment of the market, rather than just regulation. If you’re trying to regulate a badly aligned market, you end up with all kinds of unintended consequences and arbitrage.”
“It’s about trying to get to a place where the saver can be confident about getting a good deal and not having to be intensively involved at every level of management of their pensions.”
Current role: Shadow pensions minister and Labour MP for Cumbernauld, Kilsyth and Kirkintilloch East
Education: Cumbernauld High School, University of Glasgow, University of Pennsylvania
First job: Caddy at Gleneagles
Outside interests: Sports - football (playing, and an Airdrie and Barcelona fan); tennis and golf and cricket (fan). Music - Stone Roses fan
A THREE-PRONGED APPROACH
The prescription offered by McClymont is a three-pronged one.
These are: an extension of trust-based governance; a widening of fiduciary obligations to all corners of the workplace pension market; and bigger schemes. All three steps are part of a cohesive package, which must be implemented in tandem, he insists.
The complexity of the pensions market place means that every workplace arrangement should have what he describes as independent trustees. These should not be paid professionals in the sense that the industry understands the term, but individuals whose ultimate legal responsibility is to look after the interests of their scheme members rather than deliver for shareholders, which he argues is the case in the contract-based world.
Despite the protests of insurance companies that contract-based arrangements enjoy adequate regulation from the recently established Financial Conduct Authority, he doesn’t believe these safeguards are sufficient.
We don’t have the scale to allow a really effective bargaining situation
“Pensions doesn’t function in the way more straightforward markets function. In this case, savers don’t have the voice.”
However the requirement to beef up the role of trustees is just part of the jigsaw puzzle. As long as there are 52,000 pension schemes in the UK, McClymont believes individual funds will lack the muscle to work effectively on behalf of their members, which means funds need to merge.
“We don’t have the scale to allow a really effective bargaining situation. We have to scale up the saving side to allow fewer trustees.”
We have to make sure that when we get to staging small employers where most people work that there are high-quality, low-cost schemes: that’s the big challenge
The need for the kind of shake-up that he is arguing for will become more apparent as auto-enrolment pans out, McClymont predicts. The unexpectedly low level of opt-out rates so far is “encouraging”, he acknowledges. However, in common with most of the industry, he believes that the key challenges will kick in when small employers are caught in the auto-enrolment net.
“It’s a very different market when you get down to small employers. We have to make sure that when we get to staging small employers where most people work that there are high-quality, low-cost schemes: that’s the big challenge.”
The government is closer to where Labour has been in terms of charges debate
“Small employers don’t have the expertise to involve themselves in running complicated pension products.”
A key issue will be ensuring that individuals auto-enrolled into workplace schemes won’t find themselves paying rip-off charges, the issue on which McClymont found his voice as pensions spokesman last summer. He is heartened by the way that the debate has shifted since then.
“We’re getting somewhere. The government is closer to where Labour has been in terms of charges debate.”
COSTS AND CHARGES
But while the government has announced a ban on consultancy charging, which he argues must be viewed in the context of the ongoing investigation into the defined contribution market by the Office of Fair Trading, he says the investment management industry has not moved far enough yet.
Full disclosure of costs and charges won’t create a more efficient pensions market in itself
“Full disclosure of costs and charges won’t create a more efficient pensions market in itself, but it’s a necessary pre-requisite.”
The push to cut costs would be facilitated by removing restrictions on Nest (National Employment Savings Trust), which McClymont will be pushing for in the upcoming debates on the Pensions Bill. On the bill’s key measure, the introduction of a flat-rate pension, he insists that while Labour supports the principle, it is the loyal opposition’s job to speak up for those who will lose out as a result of the reforms.
“The amount of state pension most people get in the long term will be smaller,” he says. “There’s a concern about the people who don’t earn enough to be auto-enrolled or benefit from the redistributive nature of the single state pension. This will need to be teased out.”
Away from Westminster, McClymont is also busy playing an active role campaigning against Scottish independence in next year’s referendum: an allegiance that he displays on his lapel in the form of a ‘Better Together’ badge.
McClymont has fuelled the debate by raising concerns over how exiting cross-border risk sharing mechanisms, notably the Pension Protection Fund, would work post-independence.
When I was growing up in the 80s it was always five nil to the West Indies
“This came as an enormous shock to John Swinney, Alex Salmond and, it seems, the rest of the Scottish Nationalist Party. Pensions is going to be a big issue in the referendum debate,” he says. And in at least one respect he doesn’t share the automatic default position of the more blinkered Scottish sports fan.
“Unusually for a Scot, I love cricket and am an avid fan of the England cricket team. It’s probably because I support the underdog: when I was growing up in the 80s it was always five nil to the West Indies.”
However, McClymont’s summer looks like a busy one: it means he is unlikely to have much time for following the Ashes.