On his recent ski trip Richard Butcher, managing director of PTL, couldn’t help but reflect on the avalanche of changes facing trustees and what needs to be done to get them safely back on piste.
A couple of weeks ago I was on a back country skiing course, skinning up mountains for a couple of hours before skiing back down the virgin valley snow on the other side. Glorious stuff.
The skin up is a slow process - your muscles ache, your lungs burn and the mind wanders. As I was climbing it gave me plenty of mental ‘fresh powder’ time and I began to ponder about the work that is coming. In particular, April and the avalanche of changes it bought to the pensions world.
Richard Butcher, managing director of PTL (actually)
In the 2014 budget, the Chancellor went seriously off-piste when he announced his freedom and choice agenda. Initially, the pensions minister seemed lost in the avalanche before later becoming a strong advocate.
Indeed, not only did he strongly endorse them but he came up with his own radical proposals – such as the second hand annuity market. Perhaps he had he over indulged in the après ski!
Perhaps he had he over indulged in the après ski!”
In parallel to this, the Department of Work and Pensions (DWP) has fully carved its DC quality standards agenda. Amongst other things, the new framework creates the charge cap, the value for money assessment and a beefed up disclosure framework.
Also in the ‘ski party’ was the Financial Conduct Authority (FCA). They published their consultation and then rules (the “COBS”) for inserting independent governance into the delivery of workplace personal pension plans, or WPPs (what we used to call group personal pension plans).
Since April, all the relevant insurers have had to have an Independent Governance Committee (IGC) to challenge them on value for money.
All of this inevitably means that the pensions industry faces an uphill battle –, they’ll be skinning up the mountain for some time. Quite aside from the fact that much of it is new (and so, as yet, not fully understood), much of it needs new processes and kit. This will demand time, effort, imagination and, of course, money.
We are miles from home and piste maps are never easy to decipher”
The only party that seems to have stayed off course over the last 18 months is The Pensions Regulator (TPR), who got their DC code of practice, with its 31 quality features onto the slopes over a year ago. They won’t be staying there for long though and we can expect them to be ready and rested as the blizzard of other stuff settles down.
So, where does all this change leave us on the mountain?
We are miles from home and piste maps are never easy to decipher. Three fundamental questions remain unanswered and to a greater or lessor extent unknown.
No one yet knows how to go about a good value/value for money assessment and everyone is side stepping the issue of producing a proposal. The legislators won’t provide a definition and the regulators won’t provide a framework (beyond cursory guidance). Someone needs to try and bind this all together.
The third and probably most fundamental question that is unanswered is this: how will the consumer react to all this change?”
A framework for gathering transaction cost data has been proposed, but it is early days. Constructive comment is needed but in particular we need to make sure that the process does not become a box-ticking exercise that will result in the consumer making decisions based on price alone.
The third and probably most fundamental question that is unanswered is this: how will the consumer react to all this change? Will it improve transparency and trust, will they feel comfortable and able to save a meaningful amount of money and will they feel safe enough to venture further than the nursery slope of AE? More basically, will it all improve their outcomes?
Whatever happens over the next twelve months or so, as the snow settles, we must all accept that this is the future. There is snow going back.
Richard Butcher, independent trustee and managing director of PTL