Gregg McClymont MP Shadow Pension Minister: TUC Pension Trustee Network Conference 2013

 The last session of the TUC Pension Trustee network was chaired by Kay Carberry, the Assistant General Secretary of the TUC. First speaker on "Where next for UK Pensions?" was Gregg McClymont MP and Labour Shadow Pension minister.

Gregg thought that a key problem with auto-enrolment was that the employer in the main will select the workplace pension for employees. Therefore we need to make sure that there is competition and value for money. It is an "odd" market which is not transparent.

The Office Fair Trading (OFT) recently sampled the pension market and found insufficient competition. Transaction costs are not fully disclosed. If you don't know what a product will cost how can you buy it? There are incentives for fund managers to churn. In pensions size and scale matters.

In Australia where there are already only large funds the regulator has been given powers to force the merger of schemes if it makes sense. Also each year trustees are obliged to formally consider whether or not it is in the interests of beneficiaries to merge. There needs to be independent trustee governance for funds.

This doesn't mean 200k small pension trustee boards. The 4 biggest providers make up 16% of schemes. OFT did identify some weakness in Trustee governance. It is not a panacea but the best option. You need tension to deliver share owner value and we should extend the fiduciary duty up the chain to everyone who handles trustees money.

Next was Sarah Smart from "Smart Cats Consulting" and currently the Chair of the Pension Trust and on the Lothian Pension fund (LGPS). Sarah predicted that in the next 15 years NEST will have 8-10 million members. You need to have scale in pensions. Big is not necessary better but with big you can buy better governance. 

With big you can also share mortality risk with other members. Invest in growth assets rather than in annuities where you have to invest in gilts. For any new kind of Defined Ambition or Collective DC pension scheme employers have got to be reassured that they will not be liable with a scheme that is suddenly deemed to be DB?

She thinks that modern day politics means it is too short term for pensions. Instead we should have an independent pensions commission that decides things.

 Last speaker was independent trustee Fiona Draper. She stressed the importance of good administration in a pension scheme. Even if you have a global firm in charge there is no guarantee in her experience that they can work things out right. The role of professional trustees is important but they should not replace member nominated trustees.

She mused why the Australians can have proper compulsion in pensions but we can't? Why?

Finally, she teaches on a UK international course on pensions designed for the developing world. When this course started no doubt the UK Defined Benefit Pension scheme and state pension was held up to be the best that the rest of world should aspire towards. Nowadays she finds that often her students are unimpressed with the UK model and say that their own countries pension provision is better.

After the close of conference there was the famous TUC Pension network reception which this year I had to leave early to rush off to my trade union branch meeting.

"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?