The pension market is changing as the Government prepares to promote workplace pensions and auto-enrolment. At the same time Sipps and individual pensions are surging in take-up. Financial Planner asked pensions guru Steve Bee for his analysis.
Financial Planner: First Steve, while you are well known to many, for those who do not know too much about you, what is your background and how long have you worked in the pensions arena?
SB: Well, I’ve been into the pensions stuff for quite some time now, many years in fact. For reasons that are no longer clear to me I became head of pensions at Prudential and then went on to be the head of pensions strategy for the Royal London Group of businesses. Along the way I did my share of influencing government policy on pensions and won a few awards and things like that. While I was at the Pru I started something that has become known as the Never-Ending Pensions Tour - that carried on through my time at Scottish Life and Royal London and continues today in the 300 or so seminars I do every year, mostly in the UK, for Paradigm Pensions’ member firms. I haven’t changed that much really...
FP: You now work for a company called Paradigm Pensions – why did you set up this business and what are your aims for it?
SB: We formed Paradigm Pensions just under a couple of years ago now to help some really excellent, RDR- ready adviser businesses in their transformation to a new type of business model. Some people say that financial advisory firms just won’t be able to cut it in the employee-benefit market place of the future. I know they’re wrong in that and I’m in the process of proving it to them in the most emphatic way I can. My aim is to get somewhere between one and two million employees in the UK onto the JargonFreeBenefits platform within the next five years. At that point we will set our sights on the existing employee benefits market for larger firms. I’m looking forward to that enormously.
FP: You are behind a new website called jargonfreebenefits.co.uk. What was the inspiration behind this, who is it aimed at and how is progress going?
SB: JargonFreeBenefits is our fabulous product that brings compliance with the 2008 Pensions Act duties to employers and at the same time aims to connect employees with their workplace pension benefits. I really do think that the UK’s track record so far in getting employees engaged in pensions has been woefully awful. It is our aim to change that as soon as we can.
Building a new business aimed at helping employers cope with compliance and helping employees appreciate the generosity of their employers’ provision of workplace benefits like pensions is not the easiest thing to do if you start by accepting that what has been achieved thus far in our industry is worth building on. If, on the other hand, you think, as I do, that the past was not what it was cracked up to be it’s not actually that difficult.
Our progress so far has exceeded my high expectations. I hope it continues to do so...
FP: How do you see the state of pensions in the UK? Is the coalition getting things right or are we in as big a mess as ever?
SB: Pensions minister Steve Webb is doing a fantastic job. We are lucky that he has come along at just the right time in terms of where pensions are at the present time and the challenges they face. The biggest problem facing us in getting more and more people into the habit of pension saving has been the effect of means-testing on the value of ordinary people’s pensions. Our industry is quick to criticise politicians when they get things wrong. I think we should all be acknowledging our debt and gratitude to a statesman like Steve Webb for the many things he’s getting right.
FP: We’re getting close now to auto-enrolment and Nest pushing workplace schemes? Do you see this initiative being successful and can you explain your views?
SB: Auto-enrolment into workplace schemes must succeed. Our 50 year experiment in this country with the state providing earnings-related second pensions through the Graduated Pension Scheme, Serps and S2P is over. The next step-change in our system, the replacement to Beveridge’s reforms, what the state has done for over half a century on a macro level being passed over to employers to maintain in their own businesses on a micro level, has been set in motion.
It was an outgoing Labour Party’s solution that has been endorsed by the coalition government of Conservatives and Liberal-Democrats. It’s here to stay and we may as well get used to it. Nest is in many ways just another pension scheme. But it is odd in that it may not refuse any business it is offered. That is crucial for the reforms to succeed. Nest too is here to stay.
FP: What do you see as the main issues in the pensions market in general and what does the future hold for pensions?
SB: In terms of pensions in general I’d say that people are bound to need to ensure they have a sustainable income stream while they are on the planet. They can do that, of course, by selling their time as all employees do. But as we age it is obviously useful if we can call on our savings to either provide or supplement that income stream requirement.
The main issue, I guess, is that we all need to understand that while we’ve still got time to make sensible decisions about the provision of long-term income we should take the time out to do so. I think independent ageing is a far more attractive option than dependent ageing. I’m sure that I’m not alone in saying that.
FP: Some pundits have said that the future of pensions is in individual plans and group schemes are over because of their complexity and cost. What’s your view?
SB: I think pensions are like grapes; it is clearly cheaper and more efficient for them to be sold in bunches than for them to be sold individually. Can you imagine supermarkets barcoding grapes one at a time? The queues at the checkouts, for one thing, would be simply unacceptable.
FP: What difference do you think the RDR will make to the pensions market?
SB: Financial advisers who have worked long and hard to achieve qualifications and business experience should not settle for being simply distributors of products. They are better than that; much better.
The people who do the work should always be the people who reap the rewards; that is true in any market. It should be the case in our financial marketplace.
FP: Our readers are mainly Financial Planners and wealth managers. What do you believe will be the role of our readers in future pension provision?
SB: I have been saying for many years now (in fact I’m apparently a ‘broken record’) that the future of retail financial product distribution in the UK will soon become a battle between the high street and the workplace. Most financial advisers are not properly equipped to compete in the high street, but they can dominate the workplace. It is just a matter of financial advisers spotting that and taking the appropriate action; that’s all that stands between them and a much more secure and profitable future. My business is predicated on that notion.
FP: Sipps are very popular in our market but not without controversy. How do you view Sipps and Ssass and what future do they have?
SB: Employers have never had just one pension scheme for their employees. I see no reason why that should not be the case for the future. We don’t have a strong history of Ssass and Sipps in this country by mistake or design and we won’t lose them for those reasons either. It is natural that people should want to control their own assets; there’s nothing strange in that.
FP: A lot has been talked about in terms of the death of the occupational scheme and the end of the era of gold-plated pensions. Do you believe the fears have been overdone?
SB: There was no ‘Golden Age’; I was there, I know that for a fact. Pensions in the 1960s, 70s, 80s and 90s were not as secure as people thought. Today they are. I think the best pension schemes the UK will ever see have not even been built yet. We are in the process of building some of them right now...
FP: The UK economic situation is challenging to say the least and it appears pension contributions are often one of the first things to be cut back. How can consumers save for their retirement when they are struggling to meet household bills?
SB: This is a question that’s often asked at the moment and it is worth reiterating that people need an income stream for as long as they are on our planet. There is no alternative to this. Providing an income stream is possible from either continued effort or derived from prudent savings. There’s nothing mysterious in that...
FP: The UK pensions market is often said to be a tough one but it’s also vibrant and dynamic. Do you think the doom-sayers have been listened to for too long or are things really that grim?
SB: Doom-sayers should never be listened to. I mean, who cares what they think? The rest of us know they have problems and we don’t.
FP: How do you relax outside of work?
SB: I know this may sound odd to you, but I don’t really understand what the term ‘outside of work’ actually means. For the record, I don’t know what the term ‘inside of work’ means either. This is what I do; that’s all. And, by the way, don’t worry about me - I’m pretty relaxed (most of the time anyway - so I’m told...)