Henry Tapper says as the initial euphoria of 'never having to buy an annuity again' wears off, the prospect of freedoms becomes less appealing
Whether ‘sausage and chips' or ‘chicken in the basket', the ‘factory gating' that has gone on in South Wales has thrown up new icons for pension ‘freedoms', replacing the Lamborghini with a rather greasier reality.
Field concluded his questioning of British Steel Pension Scheme (BSPS) trustee chairman Allan Johnson with the remark "you're in different worlds"; certainly it seemed that way as I watched first BSPS management and then the Financial Conduct Authority (FCA) explaining what had gone wrong to an incredulous group of MPs.
Nearly 7,000 steelworkers have become members of a Facebook self-help group set up by members to share information needed in their time to choose. These technologically literate steelworkers had to resort to pen and paper to make their elections. From these groups came not just the intelligence that has shocked many pension experts, but also ‘Chive' - a spontaneous offer of pro-bono financial counselling from over 60 qualified independent financial advisers (IFAs) determined to salvage the reputation of financial advice.
While IFAs did their bit to bring the ‘two worlds' back together, the reputation of defined benefit (DB) schemes has taken a hammering as steelworkers become increasingly frustrated at being forced to choose between the Pension Protection Fund (PPF) and the new BSPS on the one hand, and the uncertainties of a self-invested personal pension on the other.
With average transfer values in excess of £300,000, steelworkers have been treated as ‘wealthy' and offered solutions that have puzzled them and shocked the experts.
This is surely the high watermark of the freedoms with hundreds of steelworkers swapping trustees for advisers for all the heartbreakingly wrong reasons.
Having inquired about the progress of the freedoms, Field and his team are moving on to a new enquiry on collective defined contribution (CDC). What seemed an arbitrary choice, now looks timely. Just before Christmas, Royal Mail and its principal union the Communication Workers Union rejected a conventional DC scheme and a cash balance DB plan in favour of a CDC scheme for all 140,000 members.
So CDC could provide a wage for life for more than the postal workers. There are 9.5 million new pension savers and while their balances are unlikely to be a meaningful source of replacement income in the next few years, many of us in our fifties are now mature DC savers without the means or inclination to pay the fees for an advised drawdown plan. The baby boomers without DB need an alternative to annuities. Could NEST and other occupational pension schemes offer their members the option of a wage for life?
And of course, BSPS will not be the last large scheme to lose the confidence of its members. Both Universities Superannuation Scheme and BT look as if they will be losing the sponsorship of their employers to pay for future DB accrual. Will they be tempted to follow the Royal Mail's lead? Or will they risk the reputational damage of a second Port Talbot?
As the initial euphoria of ‘never having to buy an annuity again' wears off, the prospect of pension freedoms becomes less appealing. While an appetite for guaranteed pensions is weak, the Royal Mail workforce clearly want their wage for life and it will be a brave Department for Work and Pensions that denies them the chance.
Could we be seeing a further turn in the great rotation of pension policy? Are people going to vote for freedom from freedoms? Will Port Talbot be seen as both the high water mark and the tipping point for the freedoms?
It's only January, but my money is on 2018 being a year when the FCA and The Pensions Regulator find themselves back in sync. My prediction is that CDC will restore some kind of order to what has become at best a messy, at worst a greasy pension landscape.
Henry Tapper is business development director at First Actuarial
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