Changing Times

Pensions should be boring. They always were, which is why I first came into the field. But now they seem to have been on the front page of the newspapers for several years, the Today programme spits daily venom at the secretary of state for work and pensions of the day (or even the hour), and the flow of White Papers, Green Papers and Pensions Commission reports threatens to overwhelm the filing systems of anyone who purports to keep an eye on pensions reform developments.

Actually pensions and pensions reform have not been boring for 30 years. For 30 years we have had a steady flow of changes, initiatives, reforms and improvements, each one a little more complicated than the last, and achieving that little bit less. Social Security Acts, Welfare Reform Acts, Pensions Acts and Finance Acts have continually changed the systems, the benefits, the funding and the regulation so that most observers are in a perpetual tizzy of confusion.

And now we have of course the current White Paper. It sets out proposals for reform which the NAPF and most other observers welcome, like they welcomed most of the others. But like most of the others the reforms are piecemeal and in some cases counter-productive, which is why most of the welcomes have been lukewarm.

The question when a White Paper in our subject emerges is whether it looks like it will avoid the need for further White Papers in the next five years. There is no prize for guessing that this one is an unlikely candidate for achieving that.
The NAPF has been looking at the White Paper and many other areas of concern. We are, however, looking to explore ways of fixing things, rather than merely responding to government initiatives, wild ideas from think tanks, and pressure from the press.

Among the players in the field the NAPF is now in a position to lead the debate out what shape the pensions system should be in the next 50 years. We have already sketched out the vision of a state scheme which should ditch the incomprehensible and inadequate basic state arrangements, the even more incomprehensible and complex additional state arrangements (with its paraphernalia of contracting-out, varying according to the nature of the scheme under the new proposals) and the third state pension (which up to 80pc of the cohort having to complete means testing applications at advanced ages).

We have meanwhile raised an eyebrow at the thought of a fourth state pension system managed by one of those computers which might actually work but which seems so hard to find in government circles. Our vision is of a simple, adequate, single state pension payable at a later age, the age varying with longevity, and which solves at a single blow the issues of inadequate pensions for women, for carers and for others not in the conventional employment market.

Thinktanks from both right and left have welcomed the idea of a Citizen’s Pension; for the moment it seems too simple for government to accept, but we will persist, and are confident that eventually common sense will triumph.

Of course the main concerns for the NAPF are those relating to the second tier of pensions provision, the workplace pension arrangements. The legislature and the regulators are of course dedicated to their continuation and expansion, especially at a time when the population is aging (as is the electorate). It just seems that their actions do not always reflect their intentions.

Accordingly, DB schemes have been all but crushed under the welter of foolish but well-meaning tax rules, accountancy protocols and regulatory controls. And DC schemes are unlikely with present designs to offer a full replacement for the many millions of us who rely on such provision. With all their complexity and inadequacy, and even with the addition of a fourth arrangement, most will be hard pushed to manage on state provision alone.

The well-to-do will always manage. The poor will seek state assistance. Some will survive on their savings. But most of us need a supplementary pension, and the most efficient, sensible, painless and attractive way of doing it is through the employment nexus. Even with the current stories, more people trust their employer than the financial services industry or the government. And throughout both the developed and the developing world efforts are being made to encourage employer-mediated pension provision.

The investment and actuarial community is coming out of the angst that developed following the bear market, and which is now beginning to accept that LDI, and the drive to bonds, needs to be tempered with common sense, and that DB pension obligations are not necessarily bond-like liabilities. The government has announced (again) a drive to simplification, which we hope to play a leading part in.

We are beginning to learn from initiatives elsewhere in the EU, most notably the Dutch who are ahead of us in the design of systems, often with union support, to overcome the restrictions of inappropriate regulation.

The NAPF team will continue to provide and improve services; to lobby government on particular issues; to construct an holistic and pragmatic pensions policy for both state and private provision; encourage the provision of workplace pensions despite the current impediments; increase its technical and lobbying support for DC arrangements and in particular investment matters; continue its work in corporate governance; offer wider facilities for alternative pension arrangements such as SASSs and SIPPs; expand trustee training and support and press harder than ever for a pensions-friendly environment in the UK.

Most of all we look to see the political imperative for a simple and holistic pensions system which could again be a model which the rest of the world might aspire to.

However, we want an environment in which not only are all these things achieved, but they go unremarked upon. Simplicity needs to be allied with stability. Pensions provision can work well if its regulatory framework accepts that employers and others have a 60-year time frame, yet that within that time frame they need to make continual adjustments to meet changing circumstances.

There are incidental signs that this is being recognised both within government and opposition, and even more importantly within the higher ranks of the civil service. The chances are quietly beginning to be looking good that we will achieve some of our major objectives of which the most important is: we want to be boring again.