NAPF: Preparing for auto-enrolment
The EU and DC were two of the most hotly debated topics at October’s National Association of Pension Funds (NAPF) conference in Manchester.
With a year to go before the UK pension industry faces its most significant reform in a generation, the conference was heavily focused on the challenges - from payroll through scheme design - posed by auto-enrolment.
Speakers, most notably Lord Hutton of Furness and UK pensions minister Steve Webb, questioned whether the country’s defined contribution (DC) pension model was fit for purpose. While some say this should have occurred in the years surrounding the Turner consensus, Webb’s enthusiasm for addressing the faults of the pension system gave the impression of a minister interested in change rather than reputation.
However, the drive for regulatory change also came from members of the NAPF, with newly elected chairman Mark Hyde Harrison outlining the organisation’s “right solution” for DC.
Evoking the lessons learned from other countries with a strong pension system, notably the Netherlands and Australia, he told delegates: “We will be helping to develop the right regulatory framework for these new breed of pensions we call Super Trusts. That looking at the right mix of incentives that can help to ensure consolidation in the market place.”
Hyde Harrison also pledged an investigation into the fee structures used by pension funds and whether those currently levied could be justified in the current environment of lower returns.
He further highlighted that trust in pension schemes had reached a low not even witnessed during the 2008 recession, a theme also touched upon by Webb when highlighting the dangers of PIE - pension increase exchange - as a minefield for the future.
The minister said this was due to the language surrounding PIE literature and the dangers of the de-risking strategy leading to lower benefits for members who may have not been able to fully grasp the agreement they were entering, going so far as to say he would like to see a note included stressing that he personally did not recommend such a transfer.
In Lord Hutton - author of the Independent Public Service Pension Commission report released earlier in the year - Webb found an ally, with the former Work & Pensions secretary praising the Liberal Democrat minister and joking that it would likely now result in his untimely resignation.
Hutton, however, was eager to stress the importance of better outcomes in the DC market, praising the Pensions Regulator for a recent consultation on the issue as it would be a “very important” issue going forward.
“I hope the DC product and brand will continue to evolve and that we see innovation,” he said, highlighting the issues surrounding the product, including the problems of inflation-proofing and how to guarantee funds accumulated would last a member a lifetime. He insisted that this could be achieved by “change and fresh thinking”.
Fresh thinking did not seem to concern Webb, who hinted that DC provision was inadequate and that he would prefer to see the reintroduction of minimum benefits.
“Am I going to make you introduce low-level DB? No. If I could find a way to make it easier if you wanted to, then am I interested in finding ways? Yes,” he told attendees when challenged to elaborate on his proposals.
Politicians’ reassurances were also witnessed when EU commissioner for employment, social affairs and inclusion László Andor took to the stage, challenged on whether the Commission understood the differences between the insurance and pension industry.
He appeased attendees by admitting that comparing the two systems was akin to comparing apples and oranges. “There is a difference, and it is understood,” he said. “Please accept there is a legitimate analysis and legitimate effort to see what needs to be done, in a reasonable way, in each and every element of the financial sector - including the pension funds.”
Asked about the conclusions drawn in the forthcoming White Paper on Pensions, Andor was non-committal: “Those of you who have read the summary of Green Paper responses will have picked up some clues on the direction based on what stakeholders have said in the discussion.”