Friday, February 08, 2013

"Ambitious Enough? The future of workplace pensions"

On Tuesday morning there was a TUC seminar on workplace pensions Chaired by Assistant General Secretary, Kay Carberry. Keynote speaker was Minister for Pensions, Steve Webb MP.

In his speech he promoted his vision of "Defined Ambition" pensions.  He thinks that Defined Benefit (DB) schemes are finished outside the public sector but wants something better than Defined Contribution (DC). Problem with DB is cost to employer and volatility, while problem with DC is uncertainty and protection against inflation.  He wants something that is not as good as before (DB) but better than the minimum (DC).

He suggested that employers may pay an insurance company (as a company perk) to protect the value of a DC scheme so that on retirement you would get at least your contributions back. He also said that what employers want with pensions is a level playing field and they don't want to pay more than competitors.

My question to him was that are we just trying to reinvent the wheel? If workers need certainty and inflation protection then the answer can only be DB. A reformed DB, where you look for example at employer caps in contribution (I forgot to mention smoothing). In Japan nearly 100% of pension provision is still DB, while in South Korea which has amongst the worlds longest life expectancy they are still opening new DB schemes. If companies want a level playing field then introduce compulsion.

He replied that he did not know why DB was still so prevalent in Japan. He thought it may be related to inflation? He also said it would be inconceivable to get political consensus in the UK  to agree to DB pension compulsion in the UK.

Which I would agree with. It will be impossible to get consensus from right wing Tories. That is why the next Labour Government with a decent Parliamentary majority should just do it, because it is the right (or rather left)  thing to do.

You can check out my twitter comments on the rest of the seminar here 5 February 2013.  There were some really fascinating contributions from other panel members: Doug Taylor from "Which?"; Professor Orla Gough from Westminster Business School and Craig Berry from the TUC.

I had another chance at a question towards the end of the seminar, where I asked the panel that there is a lot of interest currently in "Predistribution" and the concept of a living wage, since the taxpayer should not be spending money subsiding bad employers who pay poverty wages. So should we in the pensions world be also talking about a "living pension" and not allowing bad employers who don't provide one to subsidised by taxpayers as well?

Not sure if I got a full response from Panel. Craig Betty was supportive but  DWP civil servant, Mike le Brun, who took Steve Webb's place on the panel said that individuals will have to take more responsibility for their own pensions. In DB they were passive but in DC they must be active.

Which would seem to contradict his Minister comments about the problem with DC being that individual workers cannot understand the uncertainty and the inflation risk.

If the best brains in the Treasury and the City of London cannot accurately predict return and risk then what chance does Joe Public have with their DC pensions?

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