Richard Butcher says we should accept that pensions are complex while looking to improve them where possible.
Last year one of my challenges was to complete a Thames Quadrathlon I designed for myself and any mates who wanted to come along. This involved four lengths of the Thames between its navigable source, Lechlade, and the village I live in. Each leg was roughly 50 miles long, tackled first on foot, then by canoe and the penultimate stage by bike. The fourth and final leg, was a swim: 50 miles of open water in a wetsuit through the Wiltshire and Oxfordshire countryside.
It was tough, but could have been tougher. My village is downstream of Lechlade so for the entire route we swam with an, albeit weak, summer current helping us along. In training about this time last year, on more than one occasion, it had taken me an hour to get just half a mile against the current. The moral of this story? Where you can go with the flow, do so.
Pension schemes are complicated. We have layers of legislation and regulation, as well as administrative complexity designed to be compliant and to keep members' funds secure. We have information disclosures designed to ensure members make informed decisions (although in practice, you could argue, some result in less informed decision making) and investment sophistication requiring complex fund and investment vehicle structures. It's complicated, and the outcome of this complexity is opacity.
Pensions will remain complicated – not because we choose for them to be but because the law and necessary sophistication requires them to be.
If you've never swum in the Thames, believe me it is also opaque. In late June, early July, it was a lovely emerald green but the algae giving it that colour also obscured the depths. I couldn't see the bottom unless I was near to the edge. I had to trust there weren't sharks, octopuses or piranhas lurking beneath me waiting to attack.
But it's not just about blind trust. Pensions are also faced with a regular barrage of negative publicity. If one player behaves badly, say with unreasonable charges or awful performance, we are all tarred with the same brush.
Then there's the language of political discourse: "rip off fees", "scandalous exit charges", "fat cat pension bosses". I've no comments on whether these are valid observations, merely that they are very (unnecessarily) emotive. Why, for example, is a 5% early exit charge on a pension policy more venal than say the "small 5% tax charge" applied on early withdrawal from a LISA?
As I emerged from the water on one of my training dips a six-year-old boy told me it was stupid to swim in the Thames. Maybe, but I had to trust myself to see beyond the emotive language.
And then there are the conspiracy theorists. Pensions involve locking money away for a long time out of sight in complex, opaque vehicles. As people can't see or understand what's going on this naturally makes them prone to suspicion. For those with a more, let's say, active imagination, this can result in seeing things that aren't there.
On more than one occasion, as I swam, I could have sworn I heard the whir of a boat's propeller but when I got my head up to look around there was nothing more to see than grassy reeds, ripples in the water and the odd duck. It would have been foolish of me to ignore my instincts, it might have been a real boat after all, but nor could I jump out of the water every time I heard something.
We will never overcome these problems. Pensions will remain complicated - not because we choose for them to be but because the law and necessary sophistication requires them to be. It is largely pointless to swim against that current. We should, instead, go with the flow of what we can do.
Richard Butcher is managing director of PTL
PMI president Lesley Alexander and the institute's immediate past-president Lesley Carline talk about the challenges of Covid-19 and the opportunities and challenges the industry faces in the future.
The Pensions Administration Standards Association (PASA) has announced global consultant Deloitte as its expert knowledge provider for data.
This week’s top stories included further support for an overhaul of the pension tax regime, while the Treasury confirmed the Retail Prices Index will be reformed by 2030.
XPS Pensions posted a 9% increase in revenues during the six months to 30 September – a rise driven by a number of large client wins.
Here they are - the winners of the 3rd annual Women in Pensions Awards...