Pensions architecture is past the tipping point
Great social philosopher Confucius once said, “life is really simple, but we insist on making it complicated”. And in the matter of pensions, the Institute of Directors may well be the first to agree no greater words have been spoken.
At the recent launch of its Roadmap for Retirement Reform policy paper, a much-needed and vital simplicity in the pensions system had everyone in agreement, panelists and attendees alike.
The four main objectives of the 61-page report are: radically reforming and simplifying pension structure; a flat-rate universal, basic state pension; a retirement age move towards 70, and quickly; and considerations of a formal savings policy for the UK.
As with all proposed radical action, many a hand was raised in question and answer sessions: should the way forward be commitment to existing DC and auto-enrolment reform, as opposed to further changes? How can simplicity be achieved after an exponential rise in pensions text and complexity? Do we need a new product and infrastructure to get people saving?
An “exponential increase” in pensions-related text has generated an army of pensions technicians and lawyers, generating yet more text
Report author Malcolm Small, senior adviser on pensions policy for the IoD, said: “We need simplicity. The abolition of state pension means testing and a move towards simplicity is a major step forwards.”
The report stated that pensions’ architecture had passed some kind of tipping point, and has simply become too difficult to grapple with.
It said: “The list of governmental and regulatory bodies making legislation, policy interventions or regulations in pensions is exceptionally long. It includes: the department for work and pensions, HM Treasury, HM Revenue & Customs, the Pensions Regulator, the FSA and the Pensions Protection Fund.”
The study also pointed out there had been an “exponential increase” in pensions-related text. The text, it explained, had generated an army of pensions technicians and lawyers to interpret the canon of work, generating yet more text, adding: “Little wonder that the average employer or employee simply finds pensions utterly baffling.”
Mr Small said attempting to break down the current complexity would be like playing a game of giant Jenga – if one piece was moved the whole structure would collapse.
He said: “But there is no easy answer to cutting through the complexity. The pensions regime we have at the moment has just got so arcanely complex.
“It is hard to know how to resolve it. We need to start on making a new and simpler saving architecture. The only thing to do seems to be inventing something new.”
The problem, panelist Sue Curley, consulting director for Capita Hartshead, said, was that pensions by definition were unfortunately complicated.