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.
This current failure of ambition cannot be allowed to continueBut 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.
One egregious example is the daily liquidity requirements that effectively rule out pension fund access to private investments. These requirements should be urgently reconsidered.
Any new regulation must keep the end-investor’s interest at its heart.
While overzealous requirements should be removed, new protections must also be instituted, including ensuring access to private markets always happens through professional intermediaries, who are in turn required to expend resources on additional research, oversight and engagement with their private investment portfolio.
Engaging individuals in their pensions
Australia is an interesting example in this space.
I have been both thrilled and slightly baffled to hear that due to auto-enrolment, pension performance is a regular topic of conversation among Australians.
If we can raise pensions to the level of everyday conversation here in the UK, we can consider it a significant step forward.
Pension holders need clearer, better and more information about how they can maximise their pensions.
As a starter for ten, funds could repurpose a proportion of their management fee to deliver pension advice drop-ins at workplaces or increase investment in the roll-out of robo-advice.
Previous policy changes have worked well, for example in encouraging pension schemes to take ESG factors and climate risk into account.
The Pensions Bill’s proposed integrated dashboard is great and should not be forgotten.
But it is not a substitute for concrete steps to make pensions genuinely accessible.
A dashboard alone, with no more substantive reform to the myriad fees and complexities of the system, could easily become a veneer of accessibility that on its own would not drive real change.
Major pension funds must be the ones to use their technological, financial and communications might to radically simplify the customer experience.
We must embrace real pension reform or risk waking up in twenty, thirty or forty years, and finding millions of today’s workers with no meaningful retirement savings.
This current failure of ambition cannot be allowed to continue.
Gary Baker is managing director EMEA of the CFA Institute
