In November 1991, in the wake of the Maxwell scandal, whereby millions of pounds were effectively stolen from the Mirror Group pension fund, the Goode Committee introduced the most draconian pensions regulation yet seen in the UK. The fear of another Maxwell has been ever present in UK legislation since that incident, despite the fact that history is showing Maxwell to be an aberration.
The obvious impact on the consumer is that they are no longer buying a simple, easily understood product. Buying pension products in today’s legislative landscape is a complex and risky business. Understanding the impact of the decisions a consumer makes with regard to their retirement requires years of training and a deep knowledge of tens of thousands of pages of legislation.
It is logical to want to protect the consumer against making faulty decisions, and the government default is to do this with more legislation. It could be argued that a direct result of the complexity of the legislation around pensions is the need for detailed and well-trained advice, which itself has given rise to the MiFiD II and FAMR regulation (which will be just as complex).
This Gordian knot of complexity discourages consumers from wanting to engage with the pension industry and thus negates the government’s avowed intention of encouraging more people to manage their retirement plans and funds sensibly.
An individual buying a pension is looking at a thirty or forty-year investment. Common sense tells you that a degree of certainty is required when planning for such a long-term investment and this requires stability. A regime of annual change is not such an environment. As Jason Hollands of Bestinvest, the advisory firm, says, this “sends negative subliminal messages that the pensions system is unstable and subject to perpetual change”.
A complex statutory regime hits the provider with a triple whammy of price uncertainty, increased reporting overheads and an ever-present change programme.
It is difficult to price a forty year investment with any certainty when the underlying assumptions built into that pricing model are changing every year. Of course there is always some uncertainty in pricing. Maybe this is best exemplified in the world of annuities, where unforeseen life expectancy changes have fundamentally altered the pricing of annuities. But building a product that enables a customer to accumulate sufficient funds to support a target retirement income in forty years is inevitably going to be impacted by change. Annual allowances, tax reliefs and guarantee pricing will all have an impact on what that product can look like.
Quite clearly, the only people to benefit from such a complex legislative environment are the scribes of Whitehall. The customer and the provider (as well as the brokers and support industries) suffer as a result of this complexity. To read more about this difficult situation and how to start alleviating it, please check out my NEW whitepaper, A Mess of Legislation.