I seem to have drawn the short straw again this year in terms of writing our year end review. To be honest, I had thought I’d used up my best ideas writing the previous two, but then I reflected a bit and realised that 2016 was actually a bit of a Steve Davis year. Interesting.
2016 will be remembered as the year a transformational and cataclysmic tsunami of populism swept away the effete liberal political elite and replaced it with, er, well nobody is quite sure what will replace it, but I’m sure it will all turn out lovely, because the people have had their say, so what could possibly go wrong? It would be churlish to point out that only a minority of “the people” eligible to do so voted for either Brexit or Trump, but now we are officially in the “Post Truth Era”, let’s not get overly concerned by anything as inconvenient as facts.
So, what I want to do is focus on three of the most significant political changes of 2016 and how they might impact on pensions.
So, the Trumpmeister. Clearly a game changer. I’ll bet the elites of the industrial-military complex will be quaking at the thought of the Donald getting tough on them, and all those other evil capitalists. Apart from the ones invited to join his cabinet, obviously.
Apparently one of the reasons Trump ran for president was that he was sick and tired of people laughing at America. And people claim that Americans don’t do irony!
But what kind of pension policy is likely to emerge from Trump Towers?
In his 2000 book “The America We Deserve,” (suggestions on a postcard please) Mr. Trump expressed support for a privatised Social Security account, that beneficiaries could invest in the markets.
“The solution to the Great Social Security Crisis couldn’t be more obvious,” he wrote in the book, “Allow every American to dedicate some portion of their payroll taxes to a personal Social Security account that they could own and invest in stocks and bonds.”
Republicans, who now control both houses of Congress, are backing other measures to improve retirement security.
One bipartisan bill would allow small businesses to band together to offer retirement-savings plans. Currently, there is no access to a plan at work for one third of US private sector employees, many of whom work for small companies. So-called multiple-employer plans are allowed now, but only for businesses in the same industry. The potential developments here sound a bit like Master Trusts US style.
The same bill would also encourage 401(k)-style plans to offer annuities, to “help participants transform their balances into a lifetime stream of income”. An interesting counterpoint to UK policy (if not practice), which is charging (blindly?) in exactly the opposite direction.
Currently, just 14% of the 401(k)-style plans offer annuities. In part, this is because of employers’ concerns about their legal liability should the insurer they contract with for the annuity become insolvent.
To encourage more companies to take the plunge, the bill provides protections from lawsuits for employers that meet certain requirements, including selecting an annuity provider that complies with the regulations in states where the company does business.
While the bill is unlikely to pass this year, some experts expect it to be resurrected in 2017.
Also riding a surging wave of populism came Brexit. Or at least came a referendum where people voted for Brexit. Actual Brexit may not actually happen for while yet. If you Google “Brexit pensions impact” you generate 995,000 results. I’ve read them all (that may not be entirely true) and its pretty clear that nobody has any idea what the long term impact might be. Not a Scooby.
The markets actually seemed to take Brexit in their stride after an initial wobble, however political uncertainty is not usually the friend of pension schemes, and the Government does not appear in any hurry to deliver certainty, so how should trustees position themselves ahead of actual Brexit?
The key post Referendum messages of 2016 for trustees are:
- Be sure you understand your liabilities,
- Be sure you understand your investments,
- Be sure you understand your sponsors covenant; and
- Be sure you are in a position to assess and react to developments.
Work done in these areas is likely to stand trustees in good stead as political uncertainty continues into 2017.
So last, and certainly least, we come to the third great political upheaval of the year – the replacement of Ros Altmann as Pensions Minister.
I’m sure Ros is a lovely person, but regrettably I believe that her tenure in the role significantly undermined the credibility of the role of Pensions Minister.
Harsh? What particularly irked me was her consistent and persistent insistence that nothing more could be done to prevent the public losing their life savings to the pension scammers, when the industry had a reasonably extensive and achievable shopping list of changes which could make a difference. At one point she was actually quoted as saying “you’ll never stop fools being parted with their money”.
As my colleague Mike Crowe noted in his blog at the time, Financial Scams – a continued disgrace for our industry?, as recently as June of this year the doughty Baroness said banning cold calls about pensions had been considered but that it was “too difficult”.
Contrast and compare that with the following article from the Daily Telegraph on 28 October 2016:- “Theresa May must ban pension scam cold callers, former ministers, charities and the industry warn”. The bit you need to focus on is the bit where Ros is quoted as saying “I think it is unacceptable to say we can’t ban cold calling.”
Ros now says that “officials” told her that she couldn’t ban cold callers. It is the role of a minister to make and implement decisions including difficult ones, it’s not the role of a minister to meekly parrot “officials”.
Whilst Ros’s Damascene conversion is welcome, it coincides with the Government’s announcement that it is going to ban cold calling about pensions. Turns out it wasn’t that difficult after all.
As is also traditional, as part of the annual review, it’s time to consider what my crystal ball suggests might happen in 2017. The Italians have just rejected political reform, France looks set to elect a President on the basis that the likely successful candidate has stolen most of the Front Nationale’s political clothes and there are German elections to come as well. So in terms of Europe, who knows?
Closer to home, Ros’s replacement Richard Harrington has promised a Green Paper on DB Schemes. If 2017 delivered a sustainable DB framework for employers, trustees and, most importantly, members that would be an achievement indeed. Everyone knows there is a problem with DB schemes, which can properly be termed difficult, and we need to adopt (cliché alert) a holistic approach to addressing it. And to quote Dirk Gently, who knew a thing or two about holistic approaches, “let’s think the unthinkable, let’s do the undoable, let us prepare to grapple with the ineffable itself, and see if we may not eff it after all”.
As I gaze ahead to 2017, it’s all looking incredibly Steve Davis. Interesting.