SPP president Hugh Nolan tells Helen Morrissey how the body can provide a truly independent voice to help the industry navigate through difficult times.
- SPP takes its members from right across the industry
- The body wants to be seen as an independent voice and provide expertise to policy makers and the industry
- The general public’s trust in pensions has been undermined and this needs to be addressed
When the Society of Pension Consultants rebranded as the Society of Pension Professionals (SPP) last year it was in recognition of the broad membership taken across the industry. Alongside consultants members include actuaries, accounting firms, solicitors, insurance companies, investment houses, investment performance measurers, independent trustees and external pension administrators.
New SPP president Hugh Nolan hopes to leverage this experience to offer a truly independent voice on how the pension industry can develop to best serve its members and wider society.
"We are not a lobbying organisation and so we are not looking to tell the politicians what to do," he says. "However, I want politicians to be able to come to the SPP to consult us as experts in our field on potential policy ideas they might be considering. We can give them insight into how their ideas could work in practice and the hurdles they might have to get over. We want to start a debate and engage with policy makers wherever possible."
He continues: "We are made up of independent cross industry experts, rather than narrow self-interest and so we are looking at what is good for the pensions sector as a whole rather than what might be best for actuaries or lawyers. I want people to look to the SPP as somewhere they can go to access pensions expertise."
Nolan sees the role of the SPP as offering a trustworthy voice at a time when confidence in pensions has been undermined and likens the current situation to what happened in the run up to the recent EU referendum.
"If you look at the narrative of Brexit we saw a narrow victory with real doubts over the information given on both sides," he says. "There has been a real difficulty in knowing who to trust in that situation and I liken this to what has gone on in pensions in recent years. The SPP can be seen as the independent voice that people can trust in times of great uncertainty by making a complex subject more easily understandable."
As well as engaging with policy makers, Nolan believes the SPP can play a role in making the public better informed on pensions and addressing negative perceptions.
"It has been the case over the years that small faults have become big issues and misconceptions can build up," he says. "BHS is a case in point in that people believe that Sir Philip Green has run off with money but in reality that isn't what has happened. That happened with Maxwell, not BHS. The scheme was run well and we are in the position where we have a well-funded Pension Protection Fund (PPF) that can take on BHS without blinking and people will get 90% of their pension. Let's not have people lose their faith in pensions for the wrong reasons."
Another key area for the SPP will be around retirement income. While Freedom and Choice does have its benefits, Nolan believes there is still much to do to educate the general public around the choices available to them and the potential risks.
"We have had problems with annuitisation but the changes we have seen with Freedom and Choice risk throwing the baby out with the bathwater," he says. "There was a big splash a few years ago with independent financial advisers being criticised for taking 6% commissions for advice. While that may sound like a lot for one piece of advice you have to ask what might have happened if that person didn't take the advice and didn't exercise their open market option. They might have lost 20% of their fund through poor decision making and so in that context an adviser taking 6% doesn't seem like such a bad thing. It is all about establishing value for money. Don't get me wrong, there are problems with annuities that need to be addressed but we also need to realise that many people do not understand the risks around Freedom and Choice."
Nolan believes that by helping people understand what they need from their retirement income the industry can then develop the necessary products to help them get the most from their pensions.
"We need to get to the point where we can develop suitable products that work for people which in turn should stop politicians from messing around with things," he says. "When you ask people what they want from their retirement income they will tell you they don't want to run out of money but they will also say they don't want an annuity – it is a contaminated brand. We need to develop products that will help people and we need to make sure they understand them. They don't need to know every single detail about how a product works but they need to know enough."
According to Nolan, a key hurdle in the way of member understanding is the amount of choice on offer. Giving too much can prove intimidating and leads to either a poor choice being made or no choice at all.
"If you look at defined contribution (DC) investment it was always the case of giving people more choice but that is not necessarily the right thing," he says. "Binary choices are much easier whereas we paralyse people with too much choice. The key choices for DC members are when will they retire? What do they want to do with the money? How much can they afford to gamble? Once they know the answer to these questions they can start putting together a strategy - at the moment we are making things too complex."
What does SPP do?
The SPP holds regular evening meetings for its members across the country. This is an opportunity to get perspectives from people across the industry and to talk across a range of issues. Recent meetings, for instance, have discussed the potential consequences of Brexit so members can go away with a wider understanding of the key issues. From here Nolan believes members will act as ambassadors of the body and will bring these issues to the notice of their clients.
"We need to get out there and talk to people more widely rather than being introspective," says Nolan. "We need to bang the drum of what our industry is doing and get the debate going. So, for instance, what is the future for the British Steel Pension Scheme? Should it go into the PPF? Should it be allowed to reduce benefit levels by lowering annual increases? Is there a case for one scheme being treated differently to all others? I don't think so. Everyone had to abide by the same rules when things were going well so now things are difficult why should one scheme get a relaxation while others don't? This all came down to how scheme rules were drafted. Some said increases should go up by RPI while others said statutory so some can change while others cannot. How random is that? How is that good policy? These are the things we need to discuss."
As Nolan says, the issues experienced by British Steel are not limited to that scheme alone. It is a sign of a much wider issue that needs to be addressed.
"There are many schemes that are massively under-funded and they are just limping along," he says. "They cannot attract investment and the business cannot be sold because of the pension situation. Trustees and sponsors are desperately hoping that something will turn up to get them out of this mess but it won't. There are thousands of schemes that are at risk of going under. Many of them continue to roll the dice and pray for a rise in interest rates and if we see a stock market collapse then they will be in major trouble. If we can buy enough time then some will sort themselves out. However, who knows what will happen in the markets over the coming months?
"We will get some schemes to where they need to be but we won't be able to stop some failures and we need to contain this wherever we can. To do this I think a decision needs to be taken. Do we say pension benefits are sacrosanct or can they be reduced when needed? Why is it up to how a deed was drafted as to whether this can happen or not? We need to look at what is appropriate and convince politicians to come along with us."
There are undoubtedly big issues for schemes to navigate over the coming years but Nolan hopes the SPP can play a part in providing a measured, independent view and helping to plot a more sustainable future for the industry.
"We are in a time of massive uncertainty and people need reassurance," he says. "This is a time for calm heads not kneejerk reactions as we plot a steady course forward for trustees and scheme members."
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