David Pitt-Watson wants Dutch style industry wide funds and has berated the DWP for not allowing them in a new report conducted under the auspices of the posh London think-tank the RSA. But in doing so he has also slated the industry for hidden charges again. This is, for anyone who hasn’t noticed, on the very eve of auto-enrolment.
It is also on the back of several incredibly negative stories in the national papers and the intervention from Labour leader Ed Miliband on charges, though he may well have picked on the wrong fund to make his point.
Pitt-Watson is Chair of Hermes Equity Ownership Service, thus influential within institutional pensions, and a former general secretary of the Labour party so, within reason, influential within Labour party circles. Indeed, these days the RSA is run by Tony Blair’s former strategy chief Matthew Taylor.
This isn’t a conspiracy I’m revealing. But clearly there is now an opposition camp to pension reform in this form. Reading various TUC submissions particularly on small pots suggest that the unions would like to see big industry wide schemes develop eventually and for the insurers to lose the money. Arguably, the opponents also include the former FT journalist and the Cass Business School’s Pension Institute’s Debbie Harrison who is very worried about what she says are insurers’ overcharging default funds receiving lots of defaulted in pension investors. From the fund manager side we have SCM Private with its true and fair campaign and TCF’s David Norman.
The range of slightly different concerns are often bundled together by journalists which is hardly surprising and anyway SCM, never backward in coming forwards, have a press release out supporting Pitt-Watson.
However, it strikes me that there are several complicated issues here. There is a big debate about the form of the pension reform. You can do auto-enrolment with DB, but the bulk will be DC arrangements depending on employers, but towards the ‘individual’ end of the scale certainly in terms of where the risk resides and in many cases where the biggest contribution comes from.
Throw in the fact that at the end of the accumulation period, people are just about left to their own devices in what feels like an endlessly falling annuity market and you can see why some people would prefer another system.
Pitt-Watson is suggesting that small changes could allow an industry wide scheme system to develop at least alongside the existing more individualised system. There may be merit in this.
But what these studies and campaigns are creating is a perception the private pension industry is ripping people off while Nest may not add up to much of an alternative. The destination of the money, Nest or somewhere else, is decided by employers not employees anyway.
As a result the dominant theme for some newspapers is that pensions are bad value and though most don’t go so far, the implication may be that you should opt out. I’m not saying that people should keep quiet. We need to debate these issues. But the message that may be getting through to the public, the one they will hear, is surely the wrong message.
