Lesley Carline says a lot has happened over the past 25 years in the industry but, despite the negatives, she remains positive about pensions
PP editor Jonathan Stapleton rather stole my thunder by writing about the Pensions Act 1995 in his recent 25th anniversary article about the industry not learning lessons from the past (see: bit.ly/2ZoSYdx).
The act came at a time when pensions had been through quite a torrid time thanks to the Maxwell scandal. I had only been in pensions three years when the legislation was passed but was very grateful for it as it helped me pass my Pensions Management Institute exams.
Jonathan's article concentrated on the introduction of the Minimum Funding Requirement but my interest in this act has always been around the foundations it laid down for the future governance of pension schemes. The separation of company assets from the pension scheme was fundamental to improving the security of members' benefits - indeed, the kerfuffle over setting up trustee bank accounts has only really improved in the last few years.
The act set out the powers and duties of the trustees and these rules still hold true today. Luckily one of the questions in my exam was to list them; I had memorised them all. Another aspect of the act was the introduction of the requirement for Member Nominated Trustees (MNTs) and guess what, another exam question was to write a report explaining the requirements for MNTs. I am a huge fan of MNTs and the additional dimension they bring to pension schemes.
Taking a more serious look back, this act also demonstrated how seriously the governance of pension schemes should be taken. The prudent man concept was important. The role of the trustee became something more serious, after all, fines and penalties were also introduced, and trustees could be disqualified.
But a lot more has happened over the past 25 years. The Welfare and Reform Act 1999 was, in my view, a failed attempt at getting those not covered by company pension schemes, to save in stakeholder arrangements. I may be cynical but, apart from a few successes, I came across a lot of ‘empty' stakeholder arrangements. Employers set them up because they had to but, as they chose not to contribute, their staff chose not to join. Providers also got their fingers burnt not being able to recoup their investment in a sensible timeframe.
Tax simplification - or should I say pensions complication? - was another issue. The Finance Act 2004 sought to solve the issue of having eight (or some say nine) different tax regimes covering pensions. The transitional arrangements were difficult, but what came after was nice and straightforward, except where schemes choose to the keep the earning cap. And, I got to take another exam, CF9.
After a few years of the industry arguing for and against it - discussing its affordability, take-up rates and whether those at the margins would be worse off as they lost benefits - auto-enrolment was introduced and soon hailed as a huge success. It has accelerated the reshaping of the pensions landscape, with defined contribution finally taking over from defined benefit in terms of the inflows of contributions and membership numbers.
The introduction of Freedom and Choice in 2015 was another seismic change for the industry. No one was quite prepared for it and it is still causing ructions, with probably more issues to come. Investment advisers swung into action to work out how to change defaults to suit the options open to members on retirement. Administrators were overwhelmed by the volumes of transfer quote requests and settlements. In addition, the fears of pension scams and poor financial advice added to the fears of people not saving enough for retirement.
During 25 years in pensions, a lot has happened. In the above, I may have focussed on the governance and operational side as opposed to member engagement but, without these in place, there would be nothing for members to be engaged with. Despite the negatives, I am still positive about pensions, but recognise each change can bring with it unintended consequences, which we need to be alert to and mindful about when considering what comes next.
Lesley Carline is director at KGC Associates and former president of the PMI
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