In the most recent Queen’s speech in October, the government announced its proposed new Pensions Bill.
Among other changes, it was to give the Pensions Regulator powers to criminally sanction employers for making decisions that damage their pension schemes.
The General Election has since put the bill on hold, calling into question this important reform to the pensions system.
But perhaps this hiatus will result in a better solution from a new government – an enhanced, more fundamentally reforming piece of legislation.
I certainly hope so.
Because the reality is our pensions system needs much more than action to tackle the minority of unscrupulous bosses.
It needs urgent reform to establish clear value for money within schemes and help people appreciate the importance of their pensions and how much they need to save for a comfortable and secure retirement.
A broken pensions system
Despite the success of the rollout of auto-enrolment, people are not saving enough. Some sources estimate as many as 40 per cent of workers are now under-saving for their retirement.
Regardless of the precise figure, it is abundantly clear that ten years of stagnant public market returns have hampered the performance of even the most expert investors’ funds.
How do we suppose individuals, personally responsible for their pension pots through the defined contribution system are to navigate this quagmire?
Wider confusion among savers around their pensions is endemic.
Between management fees, exit fees, fund fees and more, it is almost impossible for the average worker to make an assessment of value for money in the service being provided.
Add in the effects of compound interest and one-off administrative costs, and savers need a spreadsheet (and a complex one at that) just to work out a way forward for their retirement.
I acknowledge plans for collective defined contribution pensions in the Pensions Bill would have gone some way to addressing some of these issues.
But it seems to me a partial solution to a partial understanding of the problem.
Defined contribution – in whatever guise – is here to stay.
Two issues therefore need addressing: how we navigate a new normal of low returns from the public markets; and how we meaningfully engage individuals in caring for their pensions.
Public vs private
Pension funds were once meant to be able to offer early investments in high growth companies as a mechanism to generate the best returns.
They should also be the most long-term, risk-tolerant form of investment.
The inescapable reality is that it is the private markets that can increasingly offer an appropriate balance of risk, reward and liquidity to pension holders.
However, pension funds are currently unable to invest in companies like Tesla that stay private for a long time, because regulation prevents them from accessing the private space.