NEST, the £690m (€936m) UK government-backed trust created to roll out the country’s auto-enrolment policy, has not had much of a meaningful impact on pension design and is calling for its mandate to be widened to allow it to make contributions to improvements in that regard, according to Lawrence Churchill, former chair at NEST Corporation and the Pension Protection Fund (PPF).
Churchill was one of three UK pension professionals speaking at the launch of a book by Keith Ambachtsheer on Thursday, each tackling a different theme of the book, The Future of Pension Management.
Churchill is the chairman-elect of the Pensions Policy Institute and has various other financial services roles.
In comments on the governance aspect of pension design, Churchill said the concept of ‘shared risk’ requires some form of governance structure “to balance the competing interests” of the various actors in pension provision, such as members and shareholders.
But he added that the UK was still lacking “a unified body that looks after the competing interests of the various actors”.
He cited Adair Turner’s call for a pensions commission about a decade ago but said this was not an idea that “had found favour with the government”.
He recalled advice the PPF was given from the US Pension Benefit Guaranty Corporation (PBGC) when the former was set up in the UK, which was that “whatever you do in the UK, keep the politicians out of it”.
“The PBGC has three Cabinet ministers on its board, and they found that that wasn’t always the best approach to deliver their mandate,” said Churchill.
The PBGC is a US government agency that operates two pension insurance programmes.
The board of directors is headed by a director appointed by the US president and confirmed by the Senate, and consists of the labour, commerce and treasury secretaries.
Whatever the design of a pensions commission in the UK, “we do need to acknowledge the incentives that are around and playing differently on the different actors in a scheme”, Churchill said.
Turner was the chair of the Pensions Commission, a temporary advisory body set up in 2002 to look into UK pension reform and that first suggested auto-enrolment.
It also recommended that a permanent pensions body be set up.
The idea of an independent pension commission has been supported several times since then by various stakeholders.
The national UK pension association, the Pensions and Lifetime Savings Association (PLSA), renewed its call for such a body at its March investment conference in Edinburgh.
Moving on to more technical design issues, Churchill flagged the need for more debate “in the public space” about default investment strategies, saying that the efficiency of these was “something that will come very much to the fore here in the UK with the rise of the recognition of defaults as being something absolutely necessary to make auto-enrolment work”.
As to the question of post-retirement drawdown – the provision of income in later life – “the old products in the UK are post their sell-by date”.
“We need something new, and I don’t think it’s arrived yet,” Churchill said, acknowledging that there may be new products in the UK he is not yet aware of.
An interesting idea comes from Australia, he said, where in 2014 the panel leading a review of the country’s financial system recommended a “comprehensive income retirement product, which gives the individual more income, longevity protection and flexibility, so you don’t get the lock-in for life”.
As for NEST, although the fund is “a power for good” and “is getting large”, Churchill said he was “slightly more modest in terms of where NEST is at the moment”.
Although it has “solved participation” through auto-enrolment, he said, it has not made that much of an impact on pension design per se.
“It’s still an old-fashioned DC [defined contribution] scheme,” he said, adding that those running NEST were “pushing the politicians to say ‘look, there are useful things we can do in the post-retirement space, so why not widen the mandate?”
Some 6m workers have been enrolled into a workplace pension scheme, including NEST, since the launch of auto-enrolment, according to March government figures cited by NEST.