Published on: 3 March 2011
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Sarah Smart, Chair of the Trustee at The Pensions Trust contributes to FT SchemeXpert Website on a monthly basis. Below is Sarah's sixth article 'Depoliticising Pensions' |
As some of you may have noticed, I’m not particularly enamoured with the way the pensions world is going. I don’t think the current model of DC pensions, particularly contract-based DC pensions, is in the best interests of the majority of members (or potential members). It is inefficient, and on the whole not well governed. And then there is the problem of decumulation...
But now is not the time to go over old ground. What we need are solutions, not more moaning about how bad things are. A couple of weeks ago the NAPF announced the Independent Review of Retirement Saving, chaired by Lord McFall. Personally I wasn’t overly impressed with the Treasury Select Committee’s ‘probe’ into why the credit crisis happened, but I am sure that was nothing to do with Lord McFall and that he will chair this review admirably. Since the review was announced, however, there has been a reasonable amount of comment saying that now is not the time for this – auto-enrolment and NEST have not even started yet, so surely we should give them a chance to bed in before we rock the boat again? The point has been made that a large part of the reason for the public’s mistrust of pensions is because we keep changing the goalposts, so another review is not going to improve things.
Despite my enthusiasm for a better system, I have some sympathy with the view that now is not the time for another review, particularly one that does not have any immediate powers to do anything about what it discovers. But there is something I think we could usefully be doing with ourselves at the moment.
Although a pension is a very long term product, I think the last few decades have shown us that the pension model needs to be able to react quickly as the world around us changes. Our current process cannot react quickly. The Shadow Pensions Minister admitted to me that Labour wanted to restore the earnings link to state pensions when they came into power in 1997. Well, it is only just happening now, 14 years later. We need to move faster.
We are desperate for an independent pension body that consults and decides on a progressive series of updates to the pension system in the UK. This is different from the regulatory function, so I don’t see this being done by The Pensions Regulator. This body will need to have political buy-in from all parties. This will be very difficult to achieve, but Lord Turner has shown us that it is not impossible. This body could oversee a staged implementation programme of pension amendments, widely consulted and agreed on: this will help to prevent us from unwittingly going in a direction that we know is not the right one whilst also maintaining the public confidence in the overall pension system.
I think there are many of us in the industry who would be easily sold on such an idea (it has already been strongly proposed as part of the public sector pension review). Persuading the politicians may be more difficult...