After a 35 year career in consulting, David Fairs, Partner in KPMG's pension practice, is about to head off to a different part of the pensions world, becoming the Executive Director of Regulatory Policy, Analysis and Advice at the Pensions Regulator. He is sharing some observations about how pensions have changed over the past 30 years.
Pensions were much simpler three decades years ago – although I didn’t necessarily think so at the time. Just yesterday, I was reminiscing with a client about the compact elegance of IR12, when compared to the bookshelf of pensions tax legislation today. Defined benefit was by far the most common scheme and pretty much every valuation disclosed a surplus.
There were a few defined contribution schemes around, but they tended to be for start-ups or companies working in technology or media. I do, however, remember a hint of concern when there was talk that improved benefits for leavers would be the final nail in the coffin of DB. Some 35 years later, they do indeed now look to be in terminal decline.
Having chaired one of the committees for Sir Steve Webb on Defined Ambition, it is fascinating to see CDC now becoming more topical – and, as it turns out, also one of my new responsibilities at the Regulator, as the issues of defined contribution become increasingly apparent.
Perhaps one of the most valuable aspects of my early training was learning to administer a pension scheme: talking to members accruing benefits, members reaching retirement or pensioners wanting to change their bank account because they needed a branch closer to home as they were unable to walk up the hill to the high street. And I still cringe when I remember writing a letter of condolence to a recent widow, only to get a letter back saying I’d given her a nasty shock as her husband was sitting opposite her eating his breakfast – two pensioners with the same name and same date of birth……
In the complexity of LDI, PIE exercises, GMP equalisation and compliance with GDPR, we sometimes forget the basic purpose of the pension scheme: to provide financial security when something unfortunate happens, or when we reach a point in life when we are no longer able or willing to work.
But the world has changed, and will continue to do so at an ever faster rate. My children face being auto-enrolled at 18 and will probably then have at least 50 years in front of them. Their working lives are likely to include periods of employment, self-employment, perhaps reskilling and even further education.
In my view, much of the pensions industry thinks too much about the needs of those close to retirement, when they should also be focusing closely on the needs of those just entering the workforce. Clearly, the legacy of defined benefits will need careful attention and is likely to be subject to new challenges around consolidation, tighter funding requirements and interaction with freedom and choice. But, at the same time, companies will need to start thinking more broadly around financial education, financial wellbeing and the structure of reward and savings products.
These are stimulating challenges in a rapidly evolving landscape. But my experience over the past 35 years tells me that pensions can change at a frustratingly slow pace. By moving to lead on policy at the Pensions Regulator, I am hoping I will be able to help influence some of those challenges more directly.