'Pensions tax tinkering needs political consensus'

Yet, there is absolutely no point in tinkering with pension tax rules unless there is political consensus. It is hopeless making any sort of plan if the rules change every five minutes. It appears neither of the major parties made any attempt to seek cross-party consensus before this reform was announced.

That is wrong, wrong, wrong.

Pensions now seem to share the unfortunate lot of the NHS – weaponised as political attack vehicles. I don’t know who is to blame but it is wrong to seek a short-term party advantage at the nation’s expense.

While the merits of the new rules on the annual allowance and the LTA can certainly be debated, it is unwise to proceed with them if no consensus can be reached. It will make the pensions potpourri even more of a mess. For me at least, they are certainly an improvement if only all parties sign up to the reform for the long term.

There is absolutely no point in tinkering with pension tax rules unless there is political consensus.

Trouble is already brewing; indeed, Graham Crossley, a self-proclaimed NHS policy wonk, stated on Twitter on March 16: “We could see a widespread temptation to crystallise NHS pensions from October 2023, when the new scheme partial-retirement rules are implemented, to avoid the uncertainty and risk of future LTA re-introduction.”

I am inclined to tell the politicians "a plague on both your houses”, or as Churchill said: “jaw, jaw is better than war, war”.

Pensions is such a big subject and affects so many people that policy changes must be made by the widest section of society possible and not be subject to political dogma of the right or the left. And we must make use of all the talents in our country.

Not so long ago, when I asked pensions industry experts which party had the best pension policy, the surprising answer was the Scottish National Party.

I have yet to read their latest offerings (I only tend to research what I am paid to write on to earn a crust), but true or not, what a shame if Scotland were to break away from the UK and we were to lose all the huge talents of so many Scots who helped make the UK one of the greatest countries the world has ever seen after the Act of Union in 1707.

DC workplace pensions fail the ‘little people’

Only a tiny few can afford independent financial advice. For the rest, saving for a pension has become a lottery. As a dinosaur with more than 30 years in pensions journalism, I am only sad that private defined benefit pensions are on the way out while SERPS and S2P have long gone.

These were the only pensions with guarantees – so much better for cleaners and shop assistants who do not have a clue about DC pension roulette and will never be able to afford bespoke financial advice.

Without the help of advisers, used by a privileged few, it is often a complete lottery whether people in workplace pensions will end up with a good pension or a dud.

Sadly, too often just the poorest people who need their investments to work the hardest end up in the worst-performing funds for want of financial advice.

Furthermore, the lowest paid often receive “the worst deal when it comes to charges because of the way almost all contract-based and some master trusts operate,” says Charles Goodman, partner at Employee Benefits Collective.

Without the help of financial advisers, used by a privileged few, it is often a complete lottery whether 11mn people in workplace pensions will end up with a good pension or a dud. The odds are that the ordinary consumer with little cash to spare will not enjoy stellar and consistent performance. 

To improve the situation, the FCA and TPR should shine a light on investment performance comparison. They have the wrong priorities and are too occupied with charges and governance rather than investment performance. 

Another worry is the great proliferation of almost misleading benchmarks.

Admittedly, such comparisons are difficult but regulators do not seem hugely bothered by poor investment outcomes as long as the investments are not actually fraudulent or against the rules. I suspect 'value for money' will be another tick-box exercise. Yet, we rarely see the nuclear option of shutting down the losing laggards.

Another worry is the great proliferation of almost misleading benchmarks – there is always one that will show off your fund to the best advantage. Indeed, one wealth manager told me privately it had stopped using a leading benchmark provider; it charged them a huge half a million pounds to use it.

Without standard independent measurement, with all parties using the same benchmark, financial confidence is undermined. Too many of us are completely in the dark about the shoddy performance and wide disparity of many workplaces pension funds, for example.

A job for the regulator?

My solution to end this opaque mess and the maze of confusing benchmarks (to the layperson at least) is for a regulator to move into investment performance measurement.

It is basic financial ‘hygiene’. Even the smallest local takeaway is subject to stringent hygiene rules. A local government department often provides a 1-to-5-star grading of their hygiene. Reliable investment performance monitoring is just as vital to pensions outcomes for more than 11mn people.

DC master trusts are only in their infancy in the UK. We have much to learn from the Dutch who are often ahead of us with their collective defined contribution, with a narrower range of performance outcomes. These do not come with a guarantee but are less of a lottery.

Perhaps the Royal Mail, the first CDC scheme in the country, may be the answer to the many failings of modern DC workplace provision?

Stephanie Hawthorne is a freelance journalist