NAPF chairman Ruston Smith talks about a tumultuous two years in pensions, and looks at the challenges ahead
Two years as the figurehead of the National Association of Pension Funds (NAPF) has done nothing to dim Ruston Smith's famous passion for pensions. Smith steps down this autumn, when Lesley Williams will take up the reins, but says it has been a privilege to lead the organisation during a time of far-reaching, and sometimes tumultuous, change in the industry.
"The whole two years have been great," he says. "I've been very lucky to be chair of the NAPF over a period of such significant change. I think some great fundamental changes have been made to the way people save for retirement, and their ability to choose what they want to do when they get to retirement."
A real success
Smith believes the industry deserves a lot of credit for the first of those fundamental changes, auto-enrolment. The programme, which was the result of almost a decade of planning, has helped boost the proportion of workers in occupational pension schemes from 42% in 2012 to 63% this year.
Smith says: "Auto-enrolment has been a real success, and that's down to the very hard work of the sector - people in pensions doing a great job in terms of communicating the benefits, doing the staging right, and getting people and contributions into pension schemes."
But with 1.8m small and micro-employers to stage over the next three years, the outgoing chairman is under no illusions about the scale of the task ahead to keep auto-enrolment on track. "The number of employers staging every month is going to be incredible," he says.
While the industry had plenty of time to prepare for auto-enrolment, the next great upheaval of the last few years, freedom and choice, caught a lot of people by surprise. The measures were announced in the 2014 Budget, and came into force 12 months later. Smith says the tight timeframe has meant missed opportunities for the industry.
"The industry clearly didn't have enough time to put in place what ideally they would have liked, and there has been an issue with education," he says. "That's why we're seeing people excited about the opportunity, and how they are going to save, and how they are going to use those retirement savings but when it comes down to it they are getting a bit frustrated, because they can't do what they thought they could."
This is exacerbated by a "paralysis" when it comes to giving guidance and information to members, according to Smith. The NAPF is working on three areas to address these problems: removing barriers that put drawdown out of reach for savers with smaller pots, developing standards to help kite mark good quality products, and helping companies to point retirees towards the best products.
On this last point, he says: "One of the worries at the moment is that if you signpost someone to a particular product that counts as advice."
Smith says it could fall to trade bodies like the NAPF, or other services like Pension wise, to step into this void.
Smith says the development of the Pension Infrastructure Platform (PIP) is one of the NAPF's key achievements during his tenure. The platform is intended to give schemes access to infrastructure investments and has attracted £1bn in investment so far.
Smith is "delighted" with this take up and says the vehicle will help schemes invest in projects that will benefit the country as well as give them returns better than they can currently expect from bonds. The real mark of success however will be getting a "significant proportion" of small schemes investing through the PIP.
Looking towards the next major change for the industry, Smith says the NAPF is still sounding out its members over how to respond to the government's green paper on tax relief. But he recognises that the current system needs to be looked at.
"Tax relief has become unnecessarily complicated, simply because governments have used it to generate short-term revenue," he says. "We do also have to face the fact that government has some revenue challenges, so it is a debate that has to be had. The key thing is to make sure we take a very balanced approach, and think in the long term, not the short term."
Measures under consideration included removing tax relief on contributions, then allowing retirees to access their savings tax free. But Smith warns that removing the incentive for people to lock away their savings could prove damaging. "If there is no difference in tax incentive between a short-term ISA or long-term savings, if you think of a conversation in the pub over a pint, what are people likely to say? They'll say ‘why tie your money up if there's no incentive?'."
Taxing contributions rather than incomes would reduce people's starting pots still further, he warns, leaving more old workers unable to retire, and making it harder still for younger people to get into work.
All these changes combined with the dwindling of defined benefit - further decline is "inevitable" - could make life difficult for the NAPF. The blurring of distinctions between medium and long-term saving, and rapidly changing market could make it increasingly difficult for pension schemes to speak with one voice through a single trade body.
But the current chairman says: "We approach thinking about the future in a very holistic way, so the change in the landscape really plays to our strength. We've always thought about the macro-economic perspective - the way people save for retirement - but also bringing back all that high level stuff - what does it actually mean and how does it affect real people who are working hard, and trying to save for their future?"
"What we have to do is be really clear about why we are here, and as that landscape changes, continuously challenge our own narrative and think about what is really important for our membership."
Smith says this means recognising the shift from pensions to ‘lifetime savings'. But he points out that most people will still ultimately expect their lifetime savings to deliver an income in retirement. He also stresses that that workplace pension schemes are the foundation of auto-enrolment, which is one of the key planks of the pension system being put in place. So what exactly is the role of the NAPF as he sees it?
"We are here to support long-term savers in preparing for their retirement, to make sure they've got enough income," Smith says. "If there is one contribution I've tried to make it is to really think of why we're all here, and it is really about the people who are working hard, putting money away for their retirement, and then hoping when they get to retirement that they are going to have enough income to do what they want to do."
He says that if the NAPF loses sight of savers then then it will struggle to fulfil its role of supporting member schemes and lobbying the government on their behalf.
Dumping the jargon
Smith says there are three big challenges to the NAPF and its members in delivering the support savers need: improving access to guidance, making the right products available, and ditching the confusing language that surrounds pensions.
"I mentioned the last point on my first day as chairman," he says. "We absolutely have to junk the jargon. We have this obsession with finding the most complicated words we possibly can to describe things.
"It is really simple: it's about saving for retirement, investing the money you have saved, then when you get to retirement thinking about the choices you have and either taking it in cash, drawing it down over time, buying an annuity, or any combination of those three."
Smith believes the industry has to nail these three points to take advantage of the increasingly high profile pensions enjoy.
"This is a fantastic opportunity," he says. "The pensions industry has a great opportunity to provide true social purpose. But we need to make sure people get really engaged. I've never known so many people have conversations with me, informally, about pensions as since freedom and choice came in. That gives us an opportunity that we have to make the most of."
"I feel very privileged to be part of this industry which has the ability to make such a difference. The prize is so big, and it's there for the taking, we just have to deliver."
Ruston Smith profile
Smith has over 25 years' pensions experience, and became chairman of the NAPF in 2013. He has been director of group insurable risk at Tesco since 2007, having joined the supermarket in 2002 as group pensions director.
He is responsible for the group's schemes, which have more than 350,000 members, and the £8bn of assets managed by the firm's in-house asset manager, of which he is chief executive. He is also responsible for pay, benefits, global mobility, health and wellbeing, employee relations, payroll and IT HR systems. Before joining Tesco, Smith was a Director and Company Secretary at PZ Cussons.
Smith is a director of Standard Life's master trust company, on the MBA advisory board at Manchester Business School, a director of GroceryAid Trust and a governor of the Pensions Policy Institute. He has an MBA from Manchester and is a fellow of the Pensions Management Institute and the Institute of Management.