Looking Back On 2018
In a year where the headlines were dominated by Brexit and party political turmoil, one could be forgiven for thinking it was a quiet year for pensions. In fact, it was far from it…
When I went on six months gardening leave in March, we were reportedly on the verge of getting the feasibility study into the pensions dashboard. Nine months down the line, I’m pleased to say, we now have it in our hands! The dashboard has the potential to change how we think about pensions, but one could argue that the concept is already outdated. We (the industry) need to understand that it’s the consumer’s right to access their data. Ultimately we need to open up pensions and embrace some of what we are seeing through open banking. The issues are tricky, but not insurmountable. So while 2018 will be looked on as a year of frustration for dashboard evangelists, we end the year on a high and here’s hoping that 2019 will see the project take off.
2018 also saw the first increase in auto enrolment contributions. The industry waited with baited breath to see whether this would lead to large changes in opt outs or participation. But it seemed to go off without a hitch. This demonstrates the power of inertia built into the auto enrolment system, and while we’ll need to see what happens with the next increase in 2019, the signs are positive.
After much debate, and reems of legislation, regulation and guidance, the starting gun for master trust authorisation was fired on 1 October. This will be seen as a turning point in pensions regulation as, for the first time, The Pensions Regulator will be running an authorisation regime for trust-based schemes. Importantly, it significantly raises the quality bar for those schemes that want to operate as a master trust. I expect the new regime to lead to consolidation within the industry and can see this model being used for DB consolidators and CDC schemes. Furthermore, there is a strong case to import some of the features of the master trust authorisation regime into all trust-based pensions – after all we all want schemes that are run efficiently, with proper systems and controls in place, stewarded by trustees who are fit and proper and meet certain standards. The member doesn’t generally get to choose what type of occupational pension scheme they are in, and all members deserve adequate regulatory protections.
2018 could also be remembered as a year of innovation in finding a new way to do pensions. Over the years there has been much debate about defined ambition and collective DC (CDC) finding a middle ground between defined benefit and defined contribution pensions and sharing risk. We now have a government consultation looking at this and, for the first time, it feels like this has really started to get some traction. No one has a monopoly on good ideas, and there will be naysayers, but I say give it a chance.
And, finally, last but not least, there was the usual speculation ahead of the Budget about whether the Chancellor would (again) change pensions tax relief. Although this was left well alone this time, in what was a quiet budget for pensions, reform of tax relief to make it more sustainable and fairer will come. It’s more a question of when not if. This could feasibly be 2019 – but that will very much depend on the political lie of the land and the state of the economy post Brexit.
500 words on looking forward to 2019
2019 promises to be another interesting year for pensions (when is a year not interesting in pensions?). We’ve been promised a Pensions Bill that will cover Defined Benefit, Collective Defined Contribution (CDC) and the Pensions Dashboard. And we see auto enrolment move into steady state (for now) with contributions getting to 8% in April (well sort of 8%…. given band earnings).
While a Pensions Bill is welcome, I would also call on the Government to use the opportunity to press ahead with implementing some of the conclusions of its auto enrolment review. The removal of band earnings and lowering the qualification age are two aspects where it would be a sensible step to press ahead and keep up the momentum in terms of getting more people saving more for retirement. Also I’d like to see the Government use the opportunity to tackle the small pots issue. It makes no sense for individuals to have many micro pots and, while the dashboard will help people aggregate and keep track, I think we need to either have some auto consolidation of micro pots using the infrastructure created by the dashboard and/or just simply allow people to cash these out. I’m talking micro pots here, so probably less than, say £100. These are uneconomic for providers to service and it does the member no favours to have pots of this size floating around.
The development of proposals on CDC genuinely excites me, and if the legislation enabling that gets on the statute book that will be regarded as a huge achievement. Over time, I think this could allow further innovations in sharing risks and, while the current consultation is relatively narrow, it sets the tone for the future in terms of moving away from thinking solely in terms of defined benefit and defined contribution.
The dashboard will be a key focus for 2019, and, who knows, we may even have our first dashboard up and running! While progress to date has been frustrating, I think the new DWP consultation is an opportunity to set the tone and really get cracking with delivery. There’s a tough balancing act for government in pleasing everyone on the dashboard, but I would hope that the infrastructure that is developed learns lessons from open banking and is based on new, not old, approaches and technology. Importantly, it needs to build in the space to innovate.
Last, but not least, 2019 will also be the year that master trusts will find out whether or not they have received authorisation from TPR. This is already leading to a market shake out, and I think we’ll see further consolidation in 2019, both in the master trust space, but also in the single employer trust space.
Oh yeah, nearly forgot… and, of course, there’s also tax relief… no doubt we’ll have more speculation throughout 2019 about reform. It will happen, it’s simply a case of when.
So 2019 promises to be another interesting 12 months in the development of our pensions system. We have come a long way over the past few years, but there is still much more to do to create a pensions system that can really deliver for all savers.
Head of Policy